GIFT  or 


1^juJoJLJ/^< 


^^>si. 


GANG'S  COMMERCIAL  LAW 
REVISED 


BY 


RALPH  E.  ROGERS 


ATTORNEY  AT  LAW 


AND 

CLYDE  O.  THOMPSON 

PRINCIPAL  OF  THE  COMMERCIAL  HIGH   SCHOOL 
MOUNT  VERNON,  N.  Y. 


AMERICAN  BOOK  COMPANY 

NEW  YORK  CINCINNATI 


BOSTON 


ATLANTA 


CHICAGO 


Copyright,  1921,  by 
AMERICAN  BOOK  COMPANY 


•  •  « 

•  •    »  • 


C^na's«CV>mni^rci?l  Law,  copyright,  1904,  by  L.  L,  Williams  and 
•  P.  E.  Hb^eis;  copyright,  191  j,  by  American  Book  Company 

.  •*  '  i  '<  ,.\  c' « '.  « .  ^^^  Rights  Reserved 

Commercial  Law  Revised 


PREFACE 

The  authors  of  this  edition  of  Gano's  Commercial  Law  have 
had  a  definite  aim  in  the  plan,  arrangement,  scope,  and  purpose 
of  this  text,  in  which  they  have  incorporated  the  results  of  their 
experience  in  business,  in  legal  practice,  and  in  the  class  room. 

In  general,  the  plan  of  the  text  is  to  treat  each  subdivision  of 
a  subject  intensively  in  an  expository  manner,  and  whenever 
necessary  to  clarify  each  principle  of  law  or  subject  explained,  by 
a  concrete  example  which  is  usually  an  actual  court  case.  These 
cases  have  been  selected  with  great  care  from  authoritative 
sources  and  stated  in  such  a  clear  and  concise  manner  that  the 
student  will  readily  comprehend  them.  » 

Each  subdivision  is  followed  by  questions  which  are  intended 
primarily  to  aid  the  student  in  lesson  preparation.  The  ''Im- 
portant Points"  following  each  general  subject  will  focus  the 
student's  attention  and  afford  him  a  means  of  rapid  review. 

The  test  questions  and  case  problems  may  be  used  in  various 
ways,  at  the  discretion  of  the  teacher.  Their  use  will  enliven  the 
subject  and  add  to  the  interest  of  the  student. 

The  important  statutes  near  the  end  of  the  book  will  be  useful 
for  reference  and  will  put  the  student  in  closer  touch  with  the 
great  questions  of  the  day,  many  of  which  involve  a  knowledge 
of  these  statutes. 

The  illustrative  legal  forms  have  been  collected  in  an  appendix 
near  the  end  of  the  book  where  they  are  readily  accessible  for 
reference  or  for  class  assignments. 

In  the  plan  of  this  book  the  arrangement  of  general  subjects 
is  not  a  material  factor.  The  different  subjects  treated  may  be 
taken  up  and  studied  in  any  order,  but  the  arrangement  is  logical 
and  a  proper  sequence  has  been  observed.  Following  a  brief  dis- 
cussion of  law  in  general,  and  property  to  which  commercial  law 
directly  relates,  there  is  a  very  full  treatment  of  the  rules  of  law 
governing  contracts.  This  forms  the  basis  for  the  discussion  of 
the  subjects  immediately  following:  sales,  agency,  and  nego- 
tiable paper.  These  four  subjects  are  the  most  important,  as  the 


459828 


iv  PREFACE 

business  man  comes  most  frequently  into  contact  with  them. 
The  other  subjects  may  be  taken  up  in  any  order.  We  believe, 
however,  it  is  more  logical  to  study  all  the  subdivisions  of  con- 
tract law  before  the  laws  relative  to  the  different  types  of  business 
organizations,  and  that  the  bankruptcy  laws,  which  relate 
directly  to  business  organizations,  should  follow. 

The  scope  of  the  book  has  been  made  sufficiently  broad  and 
complete  to  satisfy  the  needs  of  business  school  and  high  school 
students,  and  the  important  phases  of  the  subject  have  been 
treated  in  such  a  full  and  comprehensive  manner  as  will  give  the 
student  a  thorough  working  knowledge  of  the  fundamentals  of 
applied  commercial  law. 

In  addition  to  this  the  authors  have  endeavored  to  make  the 
text  thoroughly  teachable  by  omitting  involved  technicalities  and 
including  ample  illustrative  and  problem  material.  Technical 
terms  have  rarely  been  used  and  when  used  they  have  been 
defined  at  once.  Definitions  of  common  legal  terms  are  added, 
just  before  the  index,  for  the  convenience  of  the  student. 

While  the  purpose  of  this  text  is  primarily  for  class  use,  it 
will  be  valuable  to  any  one  who  may  desire  information  on  the 
various  topics  of  commercial  law.  It  should  be  noted  that  the 
text  is  based  on  the  common  law,  except  those  subjects  in  which 
uniform  statutes  have  been  quite  generally  adopted,  and  that  an 
attorney  should  be  consulted  for  possible  statutory  modifications. 
This  book  is  not  intended  to  teach  the  student  to  be  his  own 
lawyer,  but  to  give  him  a  thorough  and  correct  understanding  of 
the  fundamental  principles  of  commercial  law. 


^7 


1 


CONTENTS 

Law  in  General i 

Property  in  General 8 

Contracts: 

1.  In  General ii 

2.  Contracting  Parties _ 14 

3.  Offer  and  Acceptance " 22 

4.  Reality  of  Consent 26 

5.  Subject  Matter 34 

6.  Consideration 39 

7.  Operation  of'Contracts 48 

r       8.   Statute  of  Frauds 52 

9.   Discharge  of  Contract 57 

10.  Damages 66 

11.  Discharge  of  Right  of  Action 69 

Sales  of  Personal  Property: 

1.  In  General          ' 85 

2.  Parties  to  a  Sale 87 

3.  The  Contract  of  Sale 90 

^     4.   Written  Contracts  of  Sale 94 

5.  Conditional  Sale 97 

6.  Warranties      100 

7.  Remedies  for  Breach 105 

8.  Auction  Sales 109 

Agency: 

1.  In  General      119 

2.  How  Created 122 

3.  Obligation  of  Principal  to  Agent 125 

4.  Obligation  of  Agent  to  Principal 127 

5.  Obligations  of  Principal  and  Agent  to  Third  Party,  and  of 

Third  Party  to  Principal      132 

6.  Liability  of  Principal  for  Torts  or  Wrongs  of  Agent  ...  134 

7.  Termination  of  the  Relation  of  Principal  and  Agent  .    .    .  136 
Negotiable  Instruments: 

1.  In  General 146 

2.  Promissory  Notes 151 

3    Bills  of  Exchange      .    .    .    .    : 154 

4.  Checks 158 

5.  Special  Forms  of  Negotiable  Instruments 160 

6.  Negotiation 163 

7.  Defenses      175 

8.  Discharge 180 

9.  Interest  and  Usury 182 

10.   Credits .  184 

Guaranty 194 

y 


't 


b 


vi  CONTENTS 

Bailment: 

1.  In  General 204 

2.  Bailment  for  the  Bailor's  Sole  Benefit 207 

3.  Bailment  for  Bailee's  Sole  Benefit      209 

4.  Bailment  for  Mutual  Benefit 211 

5.  Innkeepers 218 

■^     6.  Common  Carriers 220 

7.  Liability  of  Common  Carriers     ............   222, 

8.  Carriers  of  Passengers 229 

Insurance: 

1.  In  General 238 

2.  Fire  Insurance 238 

3.  Fire  Insurance  Policy 241 

4.  Life  Insurance 246 

5.  Marine  Insurance      250 

6.  Casualty  Insurance 253 

Real  Property: 

I.   In  General      262 

^  2.   Estates  in  Land 263 

3.  Ownersliip,  Sale,  and  Conveyance 270 

4.  Mortgages 279 

5.  Landlord  and  Tenant 283 

Fixtures 293 

Partnership: 

I.   In  General 302 

^    2.   Rights  of  Partners  between  Themselves 308 

3.  Liability  of  Partners  to  Third  Parties 313 

4.  Remedies  against  the  Partnership 315 

5.  Dissolution 315 

Corporations: 

1.  In  General 328 

2.  Powers  and  Liabilities  of  Corporations  332 

3.  Membership  in  a  Corporation 335 

4.  Management  of  Corporations      338 

5.  Rights  of  Creditors  of  Corporations       339 

6.  Dissolution  of  a  Corporation 341 

7.  Joint  Stock  Companies 343 

Bankruptcy      348 

Courts  and  Their  Jurisdiction 354 

Pleading  and  Practice 361 

Test  Case  Problems 368 

Important  Statutes 376 

Appendix  —  Forms     381 

Common  Legal  Terms .  391 

Index     399 


1 


COMMERCIAL   LAW 


LAW  IN  GENERAL 

Definition.  —  In  a  general  sense  the  law  with  which  we  are 
concerned  is  a  rule  of  action  or  conduct  prescribed  by  the  supreme 
governing  authority,  commanding  that  which  is  right  and  pro- 
hibiting that  which  is  wrong.  The  laws  of  nature,  or  scientific 
laws,  are  entirely  outside  the  scope  of  this  book.  From  the  stand- 
point of  business  or  commerce,  law  may  be  defined  as  the  system 
of  principles  and  rules  which  relate  to  the  actions  of  men  in  their 
dealings  and  relations  with  one  another. 

The  supreme  authority  is  any  organized  form  of  government. 
The  legislative  department  of  the  national  government  makes 
laws  for  the  people  of  the  United  States.  The  legislative  depart- 
ment of  each  state  does  the  same  for  the  people  of  the  state; 
counties,  cities,  villages,  and  towns  likewise  have  legislative 
departments  which  make  laws  or  regulations  for  the  people.  All 
these  legislative  departments  lay  down  many  rules  or  laws  for 
the  guidance  of  all  within  their  jurisdictions  or  boundaries. 

There  must  be  no  conflict  of  authority.  No  state  can  make 
a  law  which  conflicts  with  the  Constitution  or  statute  laws  of  the 
United  States.  Nor  can  a  county,  city,  or  town  make  regulations 
which  conflict  with  the  laws  of  the  state  in  which  it  is  located. 

Origin  of  Law.  —  There  has  been  some  form  of  law  or  "  rule 
of  action  "  from  the  earliest  time.  An  individual  isolated  from 
others  in  an  uninhabited  region  might  be  said  to  be  without 
law,  but  as  soon  as  any  number  of  human  beings  are  associated 
together,  rules  and  customs  become  recognized  in  the  regu- 
lation of  their  rights  and  soon  have  the  force  of  law. 

In  the  time  of  the  nomadic  tribes  the  chief  dictated  many 
of  the  laws  by  which  his  people  were  governed.  In  later  times 
kings  made  many  laws.  To-day  laws  for  the  most  part  are 
made  by  representatives  elected  by  the  people  to  the  different 
lawmaking  or  legislative  bodies. 


z.    ]  .,    '  I    1  ^   "  ''.LAW  IN  GENERAL 

The  less  civilize'd*  people  of  early  times  needed  few  laws, 
but  the  highly  organized  state  of  society  at  the  present  time 
requires  many  laws. 

Law  Classified.  —  Law  may  be  classified  as  moral,  inter- 
national, and  municipal. 

Moral  Law.  —  The  code  of  ethics  which  prescribes  the  right 
and  wrong  in  the  conduct  of  one  toward  another  is  called  the 
moral  law.  Its  rules  are  enforced  by  the  sentiment  of  the  people 
derived  from  their  beHef  in,  and  understanding  of,  right  and 
wrong.  It  is  moral  law  that  tells  us  to  deal  honestly,  to  speak 
truthfully,  and  not  to  take  advantage  of  any  one. 

It  is  necessary,  sometimes,  to  make  a  distinction  between 
what  is  morally  right  and  legally  right,  or  morally  wrong  and 
legally  wrong.  For  example,  a  man  is  morally  but  not  legally 
bound  to  support  a  dependent  parent.  The  rules  of  law  tend  to 
represent  the  collective  moral  sense  of  the  community,  but  they 
rarely  reflect  that  sense  in  its  entirety,  because  lawmaking  bodies 
do  not  usually  act  as  rapidly  as  morals  are  developed,  being  held 
back  by  the  force  of  precedent  and  the  necessity  for  avoiding 
numerous  and  sudden  changes  in  law.  There  are  many  legal 
rules  which  have  no  moral  quahty,  but  are  based  on  the  necessity 
for  having  some  rule,  e.g.  the  rule  requiring  vehicles  to  pass  to  the 
right.  A  legal  right  can  be  enforced  at  law,  while  a  moral  right 
which  does  not  amount  to  a  legal  right  cannot  be  enforced. 

International  Law.  —  The  law  which  regulates  the  inter- 
course of  nations  is  international  law.  It  consists  of  rules  and 
principles  founded  on  customs,  treaties,  the  weight  of  opinion 
as  to  justice,  and  the  mutual  obligations  which  civilized  nations 
recognize  as  binding  upon  them  in  their  dealings  with  other 
nations.  The  conduct  of  the  vessels  of  different  nations  toward 
one  another  on  the  high  seas,  which  are  open  to  all,  is  a  question 
of  international  law,  as  are  the  rights  and  protection  of  repre- 
sentatives of  one  country  within  the  boundary  of  another. 

Municipal  Law.  —  The  rules  of  action  prescribed  by  the 
supreme  power  in  a  state  or  nation,  or  a  subdivision  of  a  state  or 
nation,  commanding  what  is  to  be  done  and  prohibiting  what  is 
not  to  be  done,  constitute  municipal  law. 

Every  state  or  nation  must  have  some  head  or  supreme 


MUNICIPAL  LAW  CLASSIFIED-  '    *  3 

:    A  :  ?>••  :;.;•■•.:••  •* 

power,  and  in  a  republic  like  ours  this  power  rest^  in  tn^  people 
and  is  administered  by  the  officers  whom  they  elect.  The  laws 
are  made  by  the  legislators,  administered  by  the  executive  de- 
partment of  the  government,  and  interpreted  by  the  courts 
which  apply  these  laws  to  the  cases  that  are  brought  before 
them. 

It  is  necessary  in  civilized  nations  that  the  conduct  of  man 
in  relation  with  his  brother  man  be  regulated  and  restricted. 
Otherwise  a  resort  to  arms  would  be  the  only  redress  for  a  , 
wrong.  So  it  is  that  municipal  law  is  required  in  order  to  in- 
sure justice  and  harmony.  Because  of  this  branch  of  the  law 
contracts  can  be  enforced,  possession  of  real  property  acquired 
by  its  true  owner,  and  crimes  punished. 

Municipal  Law  Classifieci.  —  Municipal  law  can  be  classified 
as  constitutional  law,  statute  law,  and  common  law  and  equity. 

Constitutional  Law.  —  Every  nation  or  state  has  a  constitu- 
tion, either  written  or  unwritten,  under  which  the  nation  exists 
and  which  as  the  basis  of  its  power  regulates,  distributes,  and 
limits  its  different  functions  and  departments.  The  law  em- 
bodied in  these  constitutions,  especially  as  applying  to  the 
establishment,  powers,  and  limitations  of  the  government,  is 
known  as  constitutional  law.  The  United  States  Constitution 
provides  that  no  person  shall  be  deprived  of  life,  liberty,  or  prop- 
erty without  due  process  of  law.  This  limitation  of  govern- 
mental powers  is  a  provision  of  constitutional  law. 

Statute  Law.  —  A  statute  law  is  a  law  made  by  a  legisla- 
tive body.  The  laws  passed  by  Congress  or  by  a  state  legisla- 
ture and  the  ordinances  passed  by  a  city  council  or  board  of  alder- 
men are  all  statute  laws.  In  this  class  also  come  laws  proposed 
by  initiative  petitions  and  adopted  by  yote  of  the  people. 

The  law  that  is  embodied  in  constitutions,  in  acts  of  Con- 
gress, in  acts  of  state  legislatures  and  all  other  legislative  bodies, 
and  in  acts  adopted  by  vote  of  the  people,  is  known  as  the  ''writ- 
ten law."  The  modern  tendency  is  to  reduce  all  rules  of  law  to 
written  law,  generally  displacing  the  unwritten  rules  of  common 
law  and  equity. 

Common  Law  and  Equity.  —  The  great  body  of  municipal 
law  in  early  English  practice  was  known  as  the  common  law 


4  LAW  IN  GENERAL 

and  consisted  originally  only  of  customs.  These,  however,  be- 
cause of  long  usage,  came  in  time  to  have  the  force  of  laws.  As 
the  affairs  of  a  growing  commercial  country  became  more  intri- 
cate, the  hard  and  fast  rules  of  common  law  which  were  firmly 
bound  down  by  precedent  were  found  inadequate  for  all  the 
needs  of  the  people,  and  there  sprang  up  the  chancery  courts 
which  decided  controversies  from  an  equitable  standpoint  and 
gave  relief  independent  of  precedent.  This  chancery  or  equity 
court  still  exists  in  a  modified  form,  but  the  distinction  between 
common  law  and  equity  has  in  a  great  measure  disappeared. 
The  distinction  of  to-day  consists  in  the  relief  sought;  if  it  be 
merely  money  damages,  then  it  is  a  common  law  case;  if  some 
extraordinary  rehef,  as  prohibiting  a  man  from  erecting  on  his 
land  a  powder  factory  which  would  endanger  his  neighbor's  dwell- 
ing, or  correcting  a  deed  of  land  which  was  improperly  drawn, 
then  the  case  is  in  equity. 

Criminal  and  Civil  Law.  —  Both  common  law  and  statute 
law  can  be  divided  into  criminal  and  civil  law. 

Criminal  Law.  —  The  preservation  of  society  demands  that 
certain  rules  be  laid  down  regulating  the  acts  of  its  members 
toward  the  community  in  general.  A  violation  of  these  laws  is 
an  offense  against  the  state  and  is  called  a  crime.  The  law 
which  treats  of  crimes  and  their  punishment  is  called  criminal 
law.  It  forbids  one  man  to  steal  from  another,  making  it  a 
crime,  because  such  acts  endanger  the  security  of  property  and 
the  safety  of  society,  and  a  punishment  of  imprisonment  for 
such  an  offense  is  therefore  provided. 

Civil  Law.  —  As  distinguished  from  the  criminal  law,  that 
branch  of  law  which  looks  to  the  establishment  and  recovery 
of  private  rights  is  called  civil  law.  It  controls  the  private 
rights  and  remedies  of  men  in  their  relations  with  each  other, 
in  contrast  with  those  that  are  public  and  affect  the  community 
in  general. 

Penalties.  —  A  crime  is  an  offense  against  the  state  in  which 
it  is  committed,  and  the  penalties  are  fines,  imprisonment,  and, 
for  a  few  offenses,  death. 

In  a  criminal  case  the  state,  through  its  officers,  is  the 
plaintiff  and  the  one  who  committed  the  crime  is  the  defendant. 


,  COMMERCIAL  LAW  5 

In  a  civil  case  the  injured  party  is  the  plaintiff,  the  one 
against  whom  action  is  brought  is  the  defendant,  and  the  penalty 
is  damages  in  the  form  of  a  judgment,  which  is  directed  against 
the  property  of  the  defendant  or,  in  a  proper  case  of  equit- 
able relief,  against  the  defendant  personally. 

Commercial  Law.  —  Commercial  law  is  a  branch  of  the  civil 
law,  and  includes  the  laws  regulating  the  rights  and  relations 
of  persons  engaged  in  trade  or  commercial  pursuits. 

Importance  of  Commercial  Law.  —  Certain  principles  of 
commercial  law  are  involved  in  every  business  transaction.  It 
is  important,  therefore,  that  everybody  who  has  business  to 
transact  should  have  such  knowledge  of  the  fundamental  princi- 
ples of  commercial  law  as  will  enable  him  to  avoid  mistakes 
which  might  involve  him  in  legal  difficulties.  The  legal  maxim, 
"  Ignorance  of  the  law  excuses  no  one,"  applies  to  all. 

Sources  of  Laws.  —  Our  laws  may  be  considered  as  derived 
from  three  sources,  the  common  law,  the  statutes,  and  the  con- 
stitutions. The  common  law,  which  was  derived  primarily  from 
the  English  law,  was  established  in  this  country  by  the  early 
English  settlers.  It  is  made  up  of  the  rules  and  customs  which 
were  in  use  from  time  immemorial  and  came  to  be  recognized 
as  laws.  It  is  also  termed  the  unwritten  law,  because  in  the 
early  times  it  consisted  merely  of  the  customs  of  the  people. 
Now  it  is  embodied  in  the  decisions  of  our  courts,  the  great 
mass  of  our  reports  of  these  decisions  being  the  common  law  in  this 
way  reduced  to  writing. 

The  United  States  and  also  the  several  states  have  their 
lawmaking  bodies.  Congress  and  the  legislatures  from  time  to 
time  pass  laws,  which  are  known  as  statute  laws,  also  called 
written  laws.  These  statutes  may  expressly  change  the  common 
law,  as  is  often  the  case,  when  the  condition  of  the  state  or  the 
progress  of  the  people  requires  it.  For  instance,  by  the  common 
law  a  wife  could  hold  no  property,  as  at  her  marriage  it  reverted 
to  her  husband,  but  by  the  statute  law  in  all  of  the  states  this  is 
changed,  and  now  in  most  of  them  she  can  hold  property  to  the 
same  extent  as  though  unmarried.  In  other  cases  the  statutes 
declare  and  put  in  express  terms  a  part  of  what  formerly  existed 
in  the  common  law;  for  example,  under  the  common  law  persons 


6  LAW  IN  GENERAL 

meeting  on  the  highway  were  to  turn  to  the  right,  and  the  same 
rule  is  now  laid  down  in  the  statutes. 

Order  of  Authority.  —  In  the  United  States  the  Constitu- 
tion is  first  in  authority,  and,  in  so  far  as  it  appHes,  all  other 
laws  must  give  way.  It  provides  that  certain  subjects  that 
come  within  the  province  of  the  general  government  shall  be 
under  the  exclusive  authority  of  Congress,  and  that  the  consti- 
tutions and  legislatures  of  the  several  states  cannot  provide 
or  make  laws  to  the  contrary.  On  the  other  hand,  all  subjects 
not  expressly  confided  to  Congress  are  left  to  the  state  authorities, 
and  are  under  the  control  of  the  constitution  and  statutes  of 
the  state.  Every  state  statute  must  be  in  conformity  with  the 
constitution  of  the  state,  as  well  as  with  the  Constitution  and 
laws  of  the  United  States.  The  common  or  unwritten  laws 
also  must  be  in  conformity  with  the  statutes  of  the  state,  as 
well  as  with  the  state  constitutions  and  the  Constitution  and 
laws  of  the  United  States. 

QUESTIONS 

1.  What  is  law?    Why  is  law  necessary? 

2.  What  is  meant  by  the  "  supreme  authority  "? 

3.  What  is  the  rule  as  to  the  conflict  of  authority  in  making  laws? 

4.  What  is  the  origin  of  law? 

5.  How  are  our  laws  made? 

6.  Why  is  it  that  highly  civilized  people  need  many  laws? 

7.  What  are  the  three  general  classes  of  law? 

8.  What  is  the  difference  between  a  moral  right  and  a  legal  right? 

9.  Interpret  the  following:    "  Law  is  based  on  right  and  justice." 

10.  How  are  international  laws  made? 

11.  Wherein  does  municipal  law  differ  from  international  law? 

12.  What  are  the  classes  of  municipal  law? 

13.  Explain  the  following  statement  as  it  applies  to  law:  "  The  con- 
stitution is  the  framework  of  government." 

14.  In  what  are  our  common  law  rules  embodied? 

15.  Into  what  two  classes  are  common  law  and  statute  law  divided? 

16.  How  is  criminal  law  enforced?    What  are  the  penalties? 

17.  How  is  civil  law  enforced?    What  are  the  penalties? 

18.  What  is  the  importance  of  commercial  law? 

19.  What  are  the  sources  of  law  in  the  order  of  authority? 

20.  What  is  the  source  of  the  early  laws  in  this  country? 
Ti.   In  what  way  do  laws  limit  individual  liberty? 


IMPORTANT  POINTS 


IMPORTANT   POINTS 

In  the  order  of  authority  our  laws  may  be  classified  as  follows: 

1.  Constitution  of  the  United  States. 

2.  Laws  of  Congress. 

3.  Constitutions  of  the  states. 

4.  Laws  of  the  state  legislatures. 

5.  The  common  law. 
Law  is  a  rule  of  action. 

The  authority  of  any  municipality  or  poUtical  subdivision  does 
not  extend  beyond  the  boundaries  thereof. 

Much  of  the  early  unwritten  or  common  law  has  been  embodied 
in  statute  laws. 

The  correct  decision  in  law  is  usually  the  same  as  the  answer 
to  the  question :  What  is  right? 

Municipal  law  is  the  law  in  force  in  a  particular  country,  state, 
county,  or  city. 

Individual  Uberty  is  restricted  only  so  far  as  is  necessary  to 
secure  observance  of  the  rules  of  law. 

International  law  can  be  enforced,  in  the  last  resort,  only  by  war. 

Municipal  law  is  enforced  by  courts  of  law  maintained  for  that 
purpose. 

In  criminal  cases  the  state  prosecutes. 

In  civil  cases  the  injured  party  brings  suit. 

Most  of  our  common  law  rules  come  from  reported  decisions  of 
courts  of  record. 

Law  is  necessary  for  protection  and  the  security  of  rights. 


PROPERTY  IN  GENERAL 

Property.  —  The  term  '^ property"  implies  ownership,  and 
ownership  implies  certain  rights,  such  as  the  right  of  possession 
and  the  right  of  use.  The  owner  of  property  has  the  right  of 
possession  of  the  things  owned  to  the  exclusion  of  every  one  else, 
and  he  has  a  right  to  the  exclusive  use  of  the  thing  owned  in  any 
way  he  sees  fit  to  use  it,  so  long  as  he  does  not,  in  its  use,  interfere 
with  the  rights  of  others. 

Property  has  Value.  —  Property  has  value  because  it  has 
uses  which  create  a  demand  for  it:  the  greater  the  demand 
for  a  particular  property,  the  more  valuable  it  becomes,  and 
its  possession  and  control  are  more  eagerly  sought.  It  is  due 
to  this  fact  that  many  laws  have  been  made  and  are  still  being 
made  for  the  purpose  of  regulating  property  rights,  ownership, 
and  transfers. 

Early  Laws.  —  Early  laws  had  for  their  purpose  the  settle- 
ment of  quarrels  and  the  suppression  of  violence  resulting  from 
disputes  over  rights  of  ownership  and  possession  of  property. 
They  necessarily  established  rules  under  which  an  individual 
who  has  acquired  property  would  be  recognized  and  protected 
as  its  owner. 

One  of  the  earliest  distinctions  of  this  early  law  was  the 
division  of  property  into  two  classes,  real  and  personal. 

Real  Property.  —  Real  property  includes  land  and  every- 
thing that  belongs  with  the  land  or  is  permanently  affixed 
thereto,  as  trees  and  houses.  It  is  generally  defined  as  fixed 
or  immovable  property. 

Personal  Property.  —  Personal  property  includes  all  prop- 
erty that  can  be  easily  moved  from  place  to  place  or  carried 
about.  Furniture,  stocks,  bonds,  money,  cattle,  clothing,  and 
personal  effects  are  classed  as  personal  property. 

It  sometimes  happens  that  property  in  one  condition  is 
classed  as  real,  and  the  same  property  in  another  condition  is 
classed  as  personal.  Coal  in  the  mine  is  real  property,  but  as 
soon  as  it  is  mined  and  ready  for  use  it  is  personal  property. 

8 


POSSESSION  AND  OWNERSHIP  9 

Likewise  trees  and  grass  or  shrubs  which  grow  naturally  are 
realty,  while  growing  or  standing,  but  as  soon  as  they  are  cut 
for  use  they  are  personalty.  Crops  which  are  planted  and 
cultivated  are  considered  personalty. 

Possession.  —  Possession  is  not  essential  to  ownership. 
Any  one  may  own  property  which  he  does  not  possess.  The 
possession  of  the  property  may  be  with  some  one  else  for  a 
certain  purpose  or  under  certain  conditions.  This  may  bring 
about  a  joint  interest  which  restricts  the  rights  of  ownership 
in  that  the  owner  will  have  to  respect  the  rights  of  the  one  in 
possession  of  the  property.  For  example,  the  owner  of  a  house 
may  lease  it  for  a  term.  The  tenant  has  certain  rights  which 
the  owner  must  respect. 

Kinds  of  Ownership.  —  Ownership  is  either  several  or  joint. 
When  the  ownership  is  several,  one  person  is  the  sole  owner. 
When  the  ownership  is  joint,  two  or  more  persons  are  owners. 
In  an  ownership  called  a  "joint  tenancy,"  if  one  owner  dies  his 
interest  passes  to  the  surviving  owners.  In  an  ownership 
called  a  "tenancy  in  common,"  if  one  owner  dies  his  interest 
passes  to  his  heirs.  If  it  is  desired,  at  any  time,  to  divide  the 
property,  those  interested  may  agree  among  themselves  on  a 
division,  or  they  may  resort  to  a  court  to  have  an  equitable 
division  made. 

Limitations  upon  Ownership.  —  While  ownership  of  property 
implies  exclusive  rights  as  to  possession  and  use,  there  are  certain 
Umitations  which  must  be  considered. 

1.  The  owner  must  not  use  his  property  in  such  a  way  as 
to  injure  others. 

2.  The  owner  of  property  must  respect  the  mandates  or 
judgments  of  a  court,  and  his  property  may  be  taken  by  due 
process  of  law  to  pay  his  debts. 

3.  Taxation  is  a  sovereign  right  of  a  nation  or  municipahty, 
and  the  owner  of  property  must  respect  this  right.  Faihng  to  pay 
his  taxes  he  may  forfeit  his  right  of  ownership. 

4.  The  state  reserves  to  itse  f  the  right  to  control  private 
property  under  certain  extreme  conditions,  as  in  the  case  of 
uprisings  and  riots.  This  is  an  example  of  what  is  known  as 
police  power. 


10  PROPERTY  IN  GENERAL 


5.  The  right  of  eminent  domain  "  gives  to  a  sovereign  |: 
power  (nation,  state,  city,  etc.)  the  right  to  take  private  property  ,•; 
for  pubhc  purposes  by  paying  the  owner  a  fair  compensation. 

QUESTIONS 

1.  What  does  property  imply? 

2.  What  does  ownership  imply? 

3.  What  are  the  two  classes  of  property? 

4.  Give  an  example  of  each  class. 

5.  Give  an  illustration  of  one  kind  of  property  being  changed  to 
the  other  kind. 

6.  What  is  meant  by  absolute  ownership  in  property? 

7.  What  limitations  are  placed  on  ownership? 

8.  Explain  the  police  power  of  a  state. 

9.  What  is  the  right  of  eminent  domain? 

10.  What  are  the  different  kinds  of  ownership? 

11.  Are  trees  and  plants  growing  naturally  and  attached  to  the  soil 
realty  or  personalty?  1 

12.  Are  cultivated  crops  realty  or  personalty?        '  l 

I 

IMPORTANT   POINTS  | 

Property  is  anything  that  is  owned.  1 

Property  is  of  two  kinds,  personal  and  real.  j 

Real  property  includes  all  fixed  or  immovable  property.  ! 

Personal  property  includes  all  property  which  is  easily  moved  j 

from  place  to  place.  j 

Ownership  is  several  when  held  by  one  person  and  joint  or  in  1 

common  when  held  by  more  than  one  person.  \ 

The  ownership  of  property  is  subject  to  the  rights  of  others, 
debts,  taxation,  police  power,  and  eminent  domain. 

Ownership  of  property  is  acquired  through  gift,  grant,  purchase,  j 

devise,  or  inheritance.  J 


CONTRACTS 

I.   IN   GENERAL 

Definition.  —  A  contract  is  an  agreement  between  two  or 
more  parties,  resulting  from  an  offer  or  proposition  and  its  accept- 
ance.   This  agreement  is  governed  by  many  rules  of  law. 

All  contracts  are  agreements  but  not  all  agreements  are 
contracts.  To  be  a  contract,  an  agreement  must  be  legally 
enforceable. 

Brown  agrees  to  sell  a  bicycle  to  Moore  for  $25.  Moore  agrees  to  pay 
$25  for  the  bicycle  and  pays  $5  to  bind  the  bargain.  This  is  a  contract. 
If  Brown  refuses  to  deliver  the  bicycle,  Moore  has  an  action  at  law  against 
Brown  for  damages. 

Arnold  promised  to  meet  Swift  at  the  Union  R.  R.  Station  at  nine 
o'clock  A.M.  He  failed  to  appear.  This  is  not  a  contract,  as  the  parties 
did  not  intend  it  to  be  a  contract.  It  is  a  broken  promise  which  gives 
no  right  of  action  for  damages. 

Oral  and  Written  Contracts.  —  Contracts  may  be  either  oral 
or  written.  All  contracts  under  seal  and  some  simple  contracts, 
as  explained  later,  must  be  written;  but  the  majority  of  con- 
tracts in  business  are  simple,  unwritten  contracts.  When  we 
consider  that  every  time  anybody  pays  his  fare  on  a  trolley  car 
or  makes  a  purchase  in  a  store  he  has  made  a  contract,  we 
realize  how  great  is  the  number  of  simple,  unwritten  contracts. 

Written  Contracts.  —  While  an  oral  contract  may  be  just 
as  valid  as  a  written  one,  it  is  desirable  to  have  a  written  con- 
tract where  a  number  of  conditions  and  specifications  are  in- 
volved or  where  the  contract  is  to  continue  in  force  for  some 
time.  An  oral  contract  that  is  in  dispute  must  be  established 
by  the  testimony  of  witnesses  or  circumstances  must  be  relied 
upon  to  determine  the  rights  of  the  parties.  A  written  contract 
is  established  by  producing  the  written  copy,  and  no  oral  evi- 
dence can  be  admitted  to  vary  or  contradict  that  which  is 
written.     (For  forms  of  written  contracts  see  Appendix.) 

Express  and  Implied  Contracts.  —  In  an  express  contract 
the  agreement  on  each  side  fe  completely  stated. 


12  CONTRACTS 

Martin  expressly  agrees  to  pay  Harris  $12  per  ton  for  5  tons  of  coal 
if  Harris  will  deliver  it  to  Martin's  hdtne  on  the  following  day.  Harris 
expressly  agrees  to  deliver  the  coal.  As  the  terms  of  this  contract  are 
fuUy  stated,  it  is  an  express  contract. 

In  an  implied  contract,  the  terms  are  understood  from  acts, 
conditions,  or  circumstances. 

Mr.  Martin  stops  at  the  coal  dealer's  office  and  orders  5  tons  of 
coal  to  be  delivered  to  his  home.  Nothing  is  said  about  the  time  of  de- 
livery or  payment.  It  is  implied  that  the  coal  will  be  delivered  promptly 
and  that  Mr.  Martin  will  pay  the  market  price  for  it  when  delivered  or 
when  he  receives  the  bill. 

Formal  and  Simple  Contracts.  —  Contracts  are  again  classi- 
fied as  formal  and  simple. 

Formal  contracts  must  be  in  writing  and  under  seal;  that 
is,  with  a  seal  affixed. 

In  early  times  the  seal  was  an  impression  on  wax,  but  statutes 
have  relaxed  the  rigor  of  the  rule,  and  now  the  impression  may 
be  on  a  wafer  or  on  the  document  itself,  and  in  some  states  a 
scroll  or  mark  made  with  the  pen,  or  the  word  "seal,"  printed  or 
written,  if  used  in  place  of  the  seal,  is  sufficient. 

L.  S.  are  letters  commonly  used  to  designate  a  seal.  They 
are  the  initial  letters  of  the  Latin  words  locus  sigilli,  meaning 
the  place  of  the  seal. 

The  principal  requisite  to  the  validity  of  the  seal  is  that  it 
must  be  the  intent  of  the  parties  to  use  the  scroll  or  mark  as 
such,  and  this  is  usually  expressed  by  the  words,  "  In  witness 
whereof  we  have  hereunto  set  our  hands  and  seals  the  day  and 
year  first  above  written,"  or  some  form  equivalent  thereto. 

A  simple  contract  (known  also  as  a  parol  contract)  is  one  not 
under  seal;  it  depends  for  its  vaHdity  not  upon  its  form  but  upon 
the  presence  of  consideration.  It  may  be  a  contract  required  by 
the  Statute  of  Frauds  to  be  in  writing.  It  may  also  be  a  contract 
that  is  valid  whether  written  or  oral;  for  instance,  a  contract  of 
employment  for  less  than  a  year. 

Snyder  employed  Marsh  for  six  months  at  $100  per  month.  Marsh 
agreed.    This  is  a  simple  contract. 

Executed  and  Executory  Contracts.  —  An  executed  contract 
is  one  in  which  the  terms  of  the  agreement  have  been  fulfilled. 
It  is  a  contract  which  has  been  completed. 


IN  GENERAL  13 

Marks  sold  Jordan  a  trunk  for  $40.  The  trunk  was  delivered  and^the 
$40  paid.    This  is  an  executed  contract. 

An  executory  contract  is  one  which  has  not  been  completed. 

Hand  sold  Lang  100,000  feet  of  lumber  at  a  certain  price,  to  be  de- 
livered during  the  twelve  months  following  and  to  be  paid  for  when 
delivered.  This  is  an  executory  contract,  until  the  lumber  has  all  been 
delivered  and  paid  for. 

In  some  cases  the  contract  may  be  executed  on  the  part  of 
one  party  to  the  contract  and  executory  on  the  part  of  the  other 
party,  as  when  goods  purchased  are  delivered  but  not  yet  paid  for. 

Bilateral  and  Unilateral  Contracts.  —  A  bilateral  contract  is 
one  in  which  both  parties  to  the  contract  are  bound  by  promises 
they  have  made,  as  in  the  last  example  above. 

A  unilateral  contract  is  one  in  which  only  one  party  is  ever 
bound  by  a  promise;  it  is  an  offer  in  the  form  of  a  promise  which 
is  accepted  by  an  act. 

Hand  offers  to  sell  and  deliver  100,000  feet  of  lumber,  within  two 
months,  for  $4,000.  Lang  accepts  the  offer  by  paying  the  $4,000  in  cash. 
This  contract  is,  from  the  beginning,  executed  on  the  part  of  Lang,  and 
executory  on  the  part  of  Hand;  therefore  the  written  agreement  would 
need  to  be  signed  by  Hand  only. 

Divisible  and  Entire  or  Indivisible  Contracts.  —  When  a 
contract  is  made  up  of  two  or  more  parts,  which  are  independent 
of  each  other,  the  contract  is  divisible  and  the  party  to  the 
contract  who  performs  part  as  agreed,  but  not  all,  may  recover 
for  the  part  performed.  When  a  contract  has  only  one  indivisible 
promise  or  act  on  one  side  and  one  on  the  other  it  is  an  entire 
contract  ahd  must  be  completely  performed. 

Matthews  purchased  from  Bliss  a  team  of  horses  for  $400,  a  harness 
for  $150,  and  a  wagon  for  $200.  The  harness  was  stolen  before  delivery, 
but  as  this  is  a  divisible  contract  Bliss  can  deliver  the  team  and  the  wagon, 
and  he  is  entitled  to  be  paid  for  them.  But  if  the  contract  stated  $750 
for  the  outfit  and  did  not  mention  distinctly  the  articles  and  the  price  of 
each,  it  would  be  an  entire  contract  and  complete  performance  would  be 
required. 

In  installment  contracts,  where,  for  example,  100  tons  of 
coal  are  to  be  delivered  each  month  for  twelve  months,  it  is  diffi- 
cult to  decide  whether  failure  for  one  month  would  be  a  breach 
of  the  whole  contract  or  not.  Decisions  on  this  question  vary 
in  the  different  states. 


14  CONTRACTS 

*  Necessary    Elements.  —  There    are    four    elements    at    the 
foundation  of  all  contracts.     These  are: 

1.  Competent  parties. 

2.  Agreement  (Offer  and  Acceptance). 

3.  Legal  subject  matter. 

4.  Consideration. 

QUESTIONS 

1.  What  is  a  contract? 

2.  Are  all  agreements  contracts?     Explain  and  give  examples. 

3.  How  are  contracts  classified?     Give  examples. 

4.  Explain  the  difference  between  an  express  and  an  implied  contract. 

5.  Give  an  example  of  an  express  contract;    of  an  implied  contract. 

6.  Explain  the  difference  between  a  formal  contract  and  a  simple 
contract. 

7.  What  is  the  seal?    What  is  its  effect? 

8.  What  is  necessary  to  constitute  a  seal? 

9.  On  what  does  a  simple  contract  depend  for  its  validity? 

10.  Give  an  example  of  a  simple  contract. 

11.  When  is  a  contract  said  to  be  executed?     Give  an  example. 

12.  When  is  a  contract  said  to  be  executory?     Give  an  example. 

13.  When  is  a  contract  said  to  be  executed  on  the  part  of  one  party 
and  executory  on  the  part  of  the  other  party? 

14.  What  is  a  bilateral  contract?     Give  an  example. 

15.  What  is  a  unilateral  contract?     Give  an  example. 

16.  When  is  a  contract  said  to  be  divisible?     Give  an  example. 

17.  When  is  a  contract  said  to  be  entire  or  indivisible?     Give  an  example. 

18.  What  are  the  four  necessary  elements  in  every  enforceable  con- 
tract? 

4 

2.   CONTRACTING  PARTIES 

Two  or  More  Parties  Necessary.  —  We  have  learned  that  a 
contract  is  an  agreement  between  two  or  more  parties.  The 
question  arises  as  to  what  persons  can  be  parties  to  a  contract. 

There  must  be  two  competent  parties  to  every  binding 
contract.  An  individual  cannot  contract  with  himself;  that  is, 
a  man  as  trustee  or  agent  cannot,  in  such  capacity,  deal  with 
himself  in  his  individual  capacity. 

Ward  appointed  White  as  agent  with  a  power  of  attorney  to  sell  certain 
property.  White  purchased  the  property  and  executed  the  transfer  to 
himself.  This  transaction  was  invalid.  White  as  agent  could  not  contract 
with  himself. 


CONTRACTING  PARTIES  15 

The  parties  to  a  contract  are  usually  designated  as  party 
of  the  first  part  and  party  of  the  second  part.  In  this  connec- 
tion we  must  distinguish  between  parties  and  persons;  while 
there  must  be  two  parties  to  every  contract,  there  may  be  any 
number  of  persons. 

Harrison,  Morgan,  and  Smith,  of  the  first  part,  contracted  with  Loomis 
and  King,  of  the  second  part. 

Infants.  —  Legally,  all  persons  under  the  age  of  twenty-one 
are  infants  or  minors,  except  that  by  statute  in  a  few  states 
females  are  declared  of  age  at  eighteen  and  males  or  females  upon 
marriage  at  any  age.  An  infant  becomes  legally  of  age  on  the  day 
preceding  his  twenty-first  birthday. 

Law  Protects  Infants.  —  It  is  an  accepted  principle  of  law 
that  an  infant  is  not  competent  to  contract,  and  the  law  affords 
him  certain  protection  so  that  he  shall  not  be  imposed  upon  or 
advantage  taken  of  him.  The  law  provides  in  general  that  any 
contract  made  by  an  infant  is  voidable  at  the  option  of  the  infant. 

The  Contract  of  an  Infant  is  Voidable  and  Not  Void.  —  An 
infant's  contract  may  contain  all  the  necessary  elements  and 
be  in  every  respect  a  good  contract,  yet  he  may,  nevertheless, 
avoid  it;  that  is,  he  need  not  perform  his  part  if  he  does  not 
wish  to  do  so.  An  infant  may  even  after  he  has  performed  the 
contract  return  the  property  and  demand  his  money  back,  or 
vice  versa. 

A  void  contract  is  one  that  is  not  a  contract  at  all  because 
it  is  unenforceable.  A  voidable  contract  is  one  that  may  or 
may  not  be  avoided  at  the  option  of  one  of  the  parties  thereto. 

When  a  contract  with  an  infant  is  made  by  a  person  of  full 
age,  the  infant  alone  has  the  right  to  avoid  or  disaffirm  the 
contract.  No  one  but  the  infant,  or  his  legal  representative 
after  his  death,  can  disaffirm  a  contract  which  the  infant  has 
made. 

Lambert,  an  infant,  contracted  for  the  purchase  of  an  automobile  for 
$1450.  He  paid  $100  cash  at  the  time  of  signing  the  contract  and  agreed 
to  pay  $1350  when  the  car  was  delivered.  Before  delivery  he  disaffirmed 
the  contract  and  demanded  a  return  of  his  money.  This  he  has  a  right  to 
do  and  the  automobile  company  will  have  to  return  the  $100  and  cancel 
the  contract.  • 


i6  CONTRACTS 

Carpenter,  an  infant,  had  traded  horses.  He  tired  of  his  bargain  and, 
having  tendered  back  the  horse  he  received,  demanded  his  original  horse. 
He  has  this  right  and  can  recover  his  horse  even  though  he  could  not  tender 
back  the  horse  he  got  in  the  trade. 

If  the  infant  falsely  represents  himself  to  be  of  age  he  does  not 
forfeit  his  right  to  avoid  the  contract,  but  he  may  be  liable  to  a 
criminal  prosecution  for  fraud. 

Aflirmance  of  Executed  Contracts.  —  The  question  at  once 
arises,  Must  the  infant,  upon  becoming  of  age,  disaffirm  to 
avoid  the  contract,  or  will  it  be  considered  to  be  avoided  unless 
he  actually  affirms  it?  The  answer  depends  entirely  upon  the 
nature  of  the  contract.  The  rule  varies  in  its  appHcation  to 
executed  and  executory  contracts.  In  the  case  of  an  executed 
contract  the  benefit  which  the  infant  sought  to  bestow  has  been 
given  to  the  other  party  and  is  good  until  it  is  disaffirmed,  and 
the  disaffirmance  must  be  by  express  words  or  by  some  distinct 
and  positive  act  which  leaves  no  doubt  of  the  intent. 

Towle,  an  infant,  sold  a  horse  to  Dresser  and  took  two  notes  in  pay- 
ment. Later  he  tendered  back  the  notes,  rescinded  the  contract,  and  sued 
for  possession  of  the  horse.  It  was  held  that  he  could  recover  the  horse. 
This,  it  will  be  seen,  is  a  case  in  which  express  disaffirmance  is  necessary. 
This  case  also  holds  that  the  disaffirmance  can  be  made  during  the  in- 
fancy, and  this  suit  was  brought  by  Towle,  through  his  father,  while  he 
was  yet  an  infant.  —  Towle  v.  Dresser,  73  Maine  252.1 

Silence  for  a  reasonable  time  after  majority  will  be  construed, 
in  many  cases  of  this  kind,  as  an  affirmance,  if  it  is  coupled 
with  a  retention  of  the  benefits. 

J  The  cases  cited  throughout  this  book  arose  in  the  state  or  country  indicated  in  the 
title.  Thus  the  case  of  Towle  v.  Dresser,  73  Maine  252  arose  in  the  state  of  Maine  and  will  be 
found  in  volume  73  of  the  reports  of  the  Supreme  Court  of  that  state  at  page  252.  Towle 
was  the  plaintiff  in  this  case  and  Dresser  the  defendant. 

In  most  of  the  states  the  plaintiff's  name  is  given  first,  followed  by  the  abbreviation 
"v.,"  standing  for  the  Latin  word  versus,  meaning  against,  and  this  is  followed  by  the  name 
of  the  defendant.    The  title  of  the  above  case  should  be  read,  Towle  against  Dresser. 

In  some  states  the  title  of  the  case  is  changed  when  it  is  appealed  to  a  higher  court,  and 
the  name  of  the  person  appealing  from  the  decision  of  the  lower  court  is  placed  first,  so  if  the 
appeal  should  be  taken  by  the  defendant,  the  title  would  be  exactly  reversed.  If  that  were 
the  rule  in  Maine  and  the  defendant  had  been  taking  the  appeal,  the  title  in  the  above  case 
would  have  been  Dresser  v.  Towle;  but  this  is  not  the  practice  in  a  majority  of  the  states. 

Some  of  the  reports  of  the  courts  are  not  known  by  the  name  of  the  state,  but  by  the 
name  of  the  reporter  who  compiled  and  edited  the  decision.  In  such  cases  the  name  of  the 
state  has  been  inserted  in  parenthesis,  as  in  the  case  of  Bartholomew  v.  Jackson,  20  Johns. 
(N.  Y.)  2& 


CONTRACTING  PARTIES  17 

Affirmance  of  Executory  Contracts.  —  On  the  other  hand,  if 
the  contract  is  executory,  it  is  necessary  for  the  infant  to  affirm, 
upon  becoming  of  age,  or  the  contract  is  avoided.  In  such  an 
agreement  infancy  is  a  defense  if  the  contract  is  sued  upon,  unless 
it  can  be  shown  that  the  contract  was  affirmed  after  maturity. 

Edwards,  one  month  before  he  became  of  age,  contracted  with  the 
Eureka  Co.  for  the  purchase  of  a  building  lot  50'  x  150',  in  the  city  of 
Atianta.  He  was  to  take  title  ninety  days  later.  This  contract  required 
that  Edwards  affirm  it  on  becoming  of  age,  and  as  he  failed  to  affirm,  the 
contract  was  declared  avoided. 

Disaffirmance  of  Contracts. — ^The  rule  is  well  established 
that  the  infant  cannot  avoid  a  part  and  affirm  the  rest.  He 
cannot  affirm  as  to  part  and  disaffirm  as  to  the  balance. 

Heath,  an  infant,  purchased  a  horse  and  wagon  for  $125,  on  the  under- 
standing that  the  horse  was  worth  $75  and  the  wagon  $50.  After  he  became 
of  age  he  tendered  the  horse  and  demanded  the  return  of  $75.  He  must 
either  disaffirm  the  contract  entirely  or  not  at  all,  and  cannot  return  part  of 
what  he  has  received  and  demand  part  of  what  he  paid. 

When  an  infant  disaffirms  an  executed  contract  he  must 
return  whatever  he  has  received  under  the  contract,  if  he  has 
the  property,  and  he  is  liable  to  an  action  at  law  for  its, recovery. 
If  the  property  has  disappeared  he  may  still  disaffirm  the  con- 
tract even  though  he  cannot  return  the  thing  received,  or  its  equivalent. 

West,  an  infant,  purchased  furniture  by  paying  for  it  on  the  install- 
ment plan.  He  made  several  payments  and  not  being  able  to  make  further 
payments,  he  refused  to  give  up  the  furniture  even  after  the  seller  agreed 
to  refund  the  amount  paid.  He  must  give  up  the  furniture  as  he  cannot 
retain  the  benefits  and  refuse  to  fulfill  the  contract. 

Clafk,  an  infant,  purchased  a  valuable  watch,  which  he  did  not  need, 
on  credit.  The  watch  was  stolen  from  him  and  he  refused  to  pay  for  it. 
Clark  has  a  right  to  disaffirm,  even  if  it  is  not  possible  for  him  to  return 
the  watch. 

Agents  Appointed  by  Infants.  —  There  is  a  particular  class  of 
infants'  contracts  that  are  always  void  and  therefore  of  no  effect. 
This  class  is  the  infant's  power  of  attorney  under  seal,  which  is  in 
no  case  valid.  Power  of  attorney  is  a  written  instrument  by 
which  one  party  appoints  another  to  act  for  him.  Many  juris- 
dictions extend  the  rule  to  every  appointment  of  an  agent  in 
any  case,  except  where  such  appointment  is  necessary.  When, 
however,  the  welfare  of  the  infant  requires  the  employment  by 


i8  CONTRACTS 

him  of  others  to  perform  services  in  his  behalf,  his  appointment 
of  an  agent  will  be  valid.  The  reason  for  these  rules  is  that  the 
law  will  not  permit  an  infant  to  perform  by  an  agent  what  he 
could  not  do  personally,  but  what  he  might  or  could  do  person- 
ally he  can  do  through  an  agent. 

Contracts  for  Necessaries.  —  There  exist  a  number  of  cases 
in  which  an  infant  cannot  avoid  payment  for  benefits  received, 
the  ^  principal  illustration  being  his  contracts  for  necessaries. 
Necessaries  include  food,  clothing,  shelter,  education,  medical 
attention,  and  those  things  needed  for  the  comfort  and  welfare 
of  the  infant. 

If  the  law  did  not  give  protection  to  parties  furnishing  the 
necessaries  of  life  to  an  infant,  we  can  see  that  many  cases 
would  arise  in  which  the  infant  might  suffer.  Therefore  the 
law  says  that  when  an  infant  is  not  supplied  with  necessaries 
by  his  parents  or  guardian  or  others  to  whom  he  may  look,  he 
may  contract  for  them  himself.  The  law  creates  a  promise  on 
the  part  of  the  infant  to  pay  what  they  are  reasonably  worth, 
but  this  does  not  mean  that  the  tradesman  can  charge  what  he 
pleases,  so  it  will  be  seen  that  the  infant  is  still  protected. 

Cain,  who  was  an  orphan  about  nine  years  of  age,  boarded  with  Hyman 
for  about  two  years.  An  action  was  brought  for  his  board.  The  court 
held  that  the  law  will  imply  a  promise  on  the  part  of  an  infant  to  pay  a 
reasonable  price  for  necessaries  furnished  to  him. 

—  Hyman  v.  Cain,  48  N.  C.  iii. 

Necessaries  Defined.  —  The  question  is  often  in  dispute  as 
to  what  are  necessaries,  and  the  rule  generally  laid  dpwn  is 
that  they  are  anything  required  by  the  particular  person  for  his 
reasonable  comfort,  subsistence,  and  education,  regard  being 
had  to  his  means,  occupation,  and  standing  in  society.  It  has 
been  held  that  a  watch  and  other  useful  articles  of  jewelry 
might  be  considered  as  necessaries. 

Foote,  a  minor  fifteen  years  of  age,  and  the  owner  of  a  large  fortune, 
had  his  teeth  filled  by  Strong,  a  dentist.  The  bill  rendered  amounted 
to  $93.  It  was  proved  that  the  teeth  were  decayed  and  pained  Foote. 
Held,  that  the  work  was  for  necessaries.  —  Strong  v.  Foote,  42  Conn.  203. 

An  infant  is  liable  for  necessaries  supplied  to  his  wife  the 
same  as  if  he  were  an  adult. 


CONTRACTING  PARTIES  19 

A  tradesman  who  furnishes  an  infant  with  supplies  is  bound 
to  show  that  they  are  necessaries,  and  if  the  infant  already  has 
a  sufficient  supply,  he  cannot  recover. 

Barnes  brought  an  action  for  the  price  of  necessaries  furnished  Toye, 
an  infant.  The  defense  was  that  the  infant  was  already"  sufficiently  sup- 
plied with  goods  of  the  same  class  and  was  not  in  want  of  these.  The  court 
held  that  Toye  could  show  that  the  goods  were  not  necessaries  as  he  was 
already  supplied  with  sufficient  goods  of  a  similar  description,  and  it  was 
immaterial  whether  Barnes  did  or  did  not  know  of  the  existing  supply. 

—  Barnes  v.  Toye,  13  Q.  B.  D.  (Eng.)  410. 

Infants  Liable  for  Torts.  —  That  an  infant  has  a  right  to 
avoid  his  contracts  and  that  the  law  gives  him  protection,  does 
not  imply  that  he  is  not  liable  for  wrongs  or  torts  which  he  com- 
mits. The  law  does  not  uphold  or  protect  any  one  guilty  of  torts 
or  wrongful  acts. 

A  tort  is  a  wrongful  act,  other  than  a  breach  of  contract, 
for  which  a  court  will  give  damages. 

Examples  of  torts  are  assault  and  battery,  trespass,  slander, 
neghgence,  threatened  violence,  and  illegal  detention  of  goods  for 
which  damages  can  be  recovered. 

Insane  Persons.  —  Since  a  contract  requires  a  meeting  of 
the  minds  of  the  contracting  parties,  it  is  evident  that  a  person 
lacking  the  mental  capacity  cannot  make  a  valid  contract. 
Some  insane  persons  appear  perfectly  rational  and  others  have 
rational  periods.  It  is  difficult,  therefore,  to  determine  the 
mental  condition  of  the  party,  and  one  may  deal  with  an  insane 
person  and  be  in  ignorance  of  his  insanity. 

The  rule  as  generally  adopted  in  this  country  is  that  if  the 
insanity  of  an  individual  has  not  been  decreed  by  the  courts, 
and  a  party  dealing  with  him  is  ignorant  of  the  insanity,  and 
the  contract  is  fair  and  has  been  so  far  executed  that  the  parties 
cannot  be  restored  to  their  original  position,  the  insane  party 
is  liable  on  the  contract. 

But  if  the  lunatic  has  been  declared  by  the  courts  to  be 
insane,  or  the  party  dealing  with  him  knew  of  his  insanity,  the 
contract  is  void. 

Carter,  an  attorney,  upon  the  request  of  Beckwith,  who  had  been 
legally  declared  insaiie,  instituted  proceedings  to  have  him  adjudged  sane, 
and  to  have  the  control  of  his  property  restored  to  him.    In  this  proceed- 


20  CONTRACTS 

ing  it  was  determined  that  he  was  still  insane,  and  the  application  was 
refused.  After  Beckwith's  death,  Carter  presented  his  claim  for  services. 
It  was  held  that  he  could  not  recover  on  the  ground  of  a  contract  with 
Beckwith,  as  any  contract  entered  into  with  a  person  judicially  declared 
insane  is  absolutely  void.  —  Carter  v.  Beckwith,  128  N.  Y.  312. 

If  the  lunatic  afterwards  becomes  sane,  he  may  then  ratify 
or  disaffirm  all  of  his  voidable  contracts,  the  same  as  an  infant 
upon  attaining  his  majority,  unless  he  has  been  declared  insane 
by  a  court,  in  which  case  the  court  will  have  to  remove  this 
disability. 

The  contracts  of  an  incompetent  person  for  necessaries  are 
subject  to  the  same  rules  as  those  of  an  infant. 

Idiots.  —  There  is  a  distinction  between  idiocy  and  insanity. 
An  insane  person  is  one  who  has  had  reasoning  power  but  through 
some  cause  has  lost  it.  An  idiot  never  has  had  reasoning  power; 
he  was  born  mentally  defective.  A  contract  with  an  idiot  is 
always  voidable,  and  in  most  cases  it  is  absolutely  void. 

Aliens.  — ^An  ahen  is  a  person  who  owes  his  allegiance  to  a 
foreign  power.  During  times  of  peace  all  valid  contracts  are 
binding  between  aliens  and  citizens.  In  certain  states  restric- 
tions are  imposed  on  aliens  in  acquiring  and  holding  land.  In 
case  of  war  between  this  country  and  the  country  to  which  the 
alien  owes  his  allegiance  he  is  an  alien  enemy;  and,  where  the 
safety  of  this  country  demands  it  or  the  contracts  result  in 
giving  aid  or  comfort  to  the  enemy,  contracts  between  an  alien 
and  a  citizen  of  this  country  may  be  declared  void.  Contracts 
entered  into  during  peace  may  be  suspended  during  the  war, 
or,  in  the  interests  of  trade,  contracts  may  be  allowed  to  con- 
tinue, either  by  treaty  or  by  special  trading  agreements. 

Married  Women.  —  In  early  times  under  the  common  law 
married  women  had  no  property  or  contract  rights.  Now  we 
find  that  by  statute  a  married  woman  can  conduct  her  own 
separate  business,  can  contract  independently  of  her  husband, 
and  in  fact  in  most  of  the  states  she  has  the  same  legal  rights 
and  powers  as  an  unmarried  woman,  except  generally  a  married 
woman  cannot  bind  herself  as  a  surety  or  guarantor. 

One  should  consult  the  laws  of  one's  own  state  before  entering 
into  a  contract  with  a  married  woman,  as  a  few  states  still 
restrict  her  freedom  to  contract. 


CONTRACTING  PARTIES  21 


QUESTIONS 

/ 

1.  How  many  parties  must  there  be  to  a  contract? 

2.  Can  an  individual  contract  with  himself?    Explain. 

3.  How  are  parties  to  a  contract  usually  designated? 

4.  Distinguish  between  parties  to  a  contract  and  persons. 

5.  Who  is  an  infant  or  minor? 

6.  When  does  a  person  become  legally  of  age? 

7.  How  does  the  law  protect  infants  who  enter  into  contracts? 

8.  What  is  a  void  contract?    What  is  a  voidable  contract? 

9.  Are  infants'  contracts  void  or  voidable? 

10.  Is  a  contract  between  an  infant  and  an  adult  binding  upon  the 
adult?    Explain. 

11.  Give  an  example  of  an  infant's  contract  that  may  be  avoided  by 
him. 

12.  An  infant  bought  a  bicycle  on  credit;   has  he  a  right  to  keep  the 
bicycle  and  not  pay  for  it? 

13.  The  bicycle  which  the  infant  bought  on  credit  was  stolen  from 
him;    can  he  avoid  paying  for  it? 

14.  Explain  an  infant's  right  to  affirm  or  disaffirm  an  executed  con- 
tract.   What  steps  must  he  take? 

15.  Is  it  necessary  for  an  infant  to  affirm  an  executory  contract  if  he 
wishes  to  live  up  to  it? 

16.  When  will  silence  amount  to  affirmation? 

17.  When  is  infancy  a  defense  to  an  action  on  an  executory  contract? 
When  is  it  not  a  defense? 

18.  Can  an  infant  avoid  a  part  of  a  contract  and  affirm  the  rest?    Ex- 
plain. 

19.  What  class  of  infants'  contracts  are  always  void?     Explain. 

20.  What  exception  is  there  to  the  rule  that  an  infant's  contracts  are 
voidable  at  the  option  of  the  infant?     Why  this  exception? 

21.  What  is  included  under  necessaries? 

22.  Can  a  dealer  coUect  from  an  infant  more  than  the  necessaries  are 
worth?    Or  for  necessaries  that  the  infant  did  not  need? 

23.  Is  an  infant  Hable  for  his  torts?    Explain.     Give  examples. 

24.  What  is  the  rule  as  to  the  contracts  of  insane  persons? 

25.  When  is  a  person  said  to  be  insane  and  incompetent  to  corttract? 

26.  Can  an  insane  person  make  a  valid  contract?     Explain. 

27.  Has  a  lunatic  a  right  during  a  sane  interval  to  affirm  or  disaffirm 
his  voidable  contracts? 

28.  What  is  the  distinction  between  idiots  and  lunatics? 

29.  Who  is  an  alien? 

30.  What  are  the  rules  governing  contracts  with  aliens? 

31.  What  are  the  rules  governing  a  contract  with  a  married  woman? 
Explain. 


22  CONTRACTS 

/ 

3.  OFFER  AND  ACCEPTANCE 

The  Foundation  of  a  Contract.  —  Every  contract  is  the  re- 
sult of  an  offer,  by  one  party,  which  is  accepted  by  another 
party.  Traced  back  to  its  origin  a  contract  amounts  to  this: 
The  first  party  says,  "  I  will  take  a  certain  sum  for  this  article  "; 
to  which  the  second  party  answers,  "  I  will  accept  your  offer 
and  give  you  the  specified  sum." 

You  enter  a  furniture  store.  The  tradesman  by  exhibiting 
his  wares  virtually  says  he  will  take  the  stated  price  for  such 
articles.  You  say  you  will  take  a  certain  chair,  marked  $10. 
Here  we  have  an  offer  and  acceptance. 

The  offer  must  be  explicit.  If  A  says,  "  I  may  take  $100 
for  this  horse  when  I  get  ready  to  sell  him,"  this  is  not  an  offer 
which  B  can  accept  and  thereby  create  a  contract. 

The  acceptance  must  be  absolute  and  on  the  exact  terms 
contained  in  the  offer.  If  A  offers  to  sell  a  load  of  hay  for  $10, 
and  B  says  he  will  give  him  $9  for  it,  no  contract  is  made  be- 
cause there  is  no  acceptance  of  the  offer. 

The  Offer  and  Acceptance  must  Pertain  to  the  Same  Ob- 
ject.—  A  may  offer  to  sell  his  bay  horse  for  $100.  B  says, 
"  I  will  give  you  that  amount  for  your  gray."  There  is  no 
contract  because  the  minds  of  the  parties  have  not  met. 

Myers  owns  four  auto  trucks,  all  different  makes.  Jerome  said  to 
Myers,  'T  will  give  $1000  for  one  of  your  trucks."  Myers  replied,  'T  will 
accept  $1000  for  one."  This  is  not  a  contract,  as  there  is  a  chance  that 
Jerome  has  one  truck  in  mind  and  Myers  has  another,  and  their  minds 
have  not  met  on  the  same  proposition. 

The  Offer  must  be  Communicated  to  the  Party  Accepting 

it.  —  The  offer  may  be  communicated  orally,  in  writing,  or  by 

acts  and  conduct,  or  it  may  be  published.    In  whatever  way  it 

is  cornmunicated  it  must  actually  reach  the  party  accepting  it. 

A  contract  cannot  result  until  the  offer  reaches  the  offeree  and 

he  accepts  it. 

An  offer  unintentionally  communicated  indirectly  cannot  be 

said  to  have  been  communicated. 

Dann  says  to  Lewis,  *T  will  sell  my  horse  to  Brush  for  $200,  if  he  will 
give  that  amount."  This  does  not  constitute  an  offer  to  Brush,  even  though 
Lewis,  without  authority,  tells  Brush  about  it,  as  it  cannot  be  said  to  have 
been  communicated  by  Dann. 


OFFER  AND  ACCEPTANCE  23 

In  some  states  it  is  held  that  a  person  who  gives  information 
concerning  the  parties  to  a  crime  without  any  knowledge  of  the 
reward  which  has  been  offered,  cannot  claim  the  reward,  as  tho 
offer  has  not  really  been  communicated  to  him.  Other  states 
hold  that  he  can  recover,  as  the  reward  is  a  public  offer  and 
when  acted  upon  binds  the  offerer.  The  weight  of  authority 
seems  to  be  in  favor  of  denying  the  right  of  the  plaintiff  to 
recover  when  he  had  no  knowledge  of  the  reward  prior  to  the 
time  of  the  giving  of  the  information. 

When  a  man  works  for  another  without  his  request  or  knowl- 
edge, there  is  no  contract  and  he  cannot  recover. 

Jackson  owned  a  field  in  which  Bartholomew  had  a  stack  of  wheat 
which  he  had  promised  to  move  in  time  for  plowing.  Notice  having  been 
given,  he  promised  that  it  would  be  moved  at  10  a.m.  Relying  on  this 
promise,  Jackson,  shortly  after  10  a.m.,  set  fire  to  the  stubble  in  a  distant 
part  of  the  field,  but  later  found  the  stack  was  not  removed,  so  did  it  him- 
self to  save  the  grain,  and  then  sued  Bartholomew  for  the  work.  Held, 
the  services  were  rendered  without  request  and  with  no  promise  express 
or  implied  to  pay  for  them,  and  there  can  be  no  recovery.  The  judge  said, 
"If  a  man  humanely  bestows  his  labor,  and  even  risks  his  life,  in  voluntarily 
aiding  to  preserve  his  neighbor's  house  from  destruction  by  fire,  the  law 
considers  the  services  rendered  as  gratuitous." 

— Bartholomew  v.  Jackson,  20  Johns.  (N.  Y.)  28. 

If,  however,  the  person  for  whom  the  work  is  being  done 
knows  of  it  and  does  not  order  the  doer  to  stop,  acceptance  is 
implied  and  he  will  have  to  pay. 

The  Acceptance  must  be  Communicated.  —  Not  only  must 
the  offer  be  communicated,  as  we  have  seen,  but  the  acceptance 
must  also  be  communicated,  and  whether  it  reaches  the  offerer 
or  not,  it  must  be  something  more  than  a  mere  mental  assent. 

Andrews  offered  Loomis  $500  to  erect  a  portable  garage.  Loomis, 
intending  to  accept  the  offer  but  without  communicating  his  acceptance 
to  Andrews,  purchased  the  lumber  and  proceeded  with  the  work.  I^ater 
Andrews  decided  he  would  not  need  the  garage  and  notified  Loomis  with- 
drawing his  offer.  Loomis  cannot  recover  damages  as  he  failed  to  com- 
municate his  acceptance  to  Andrews  and  there  was  no  contract. 

Acceptance  must  be  Made  as  Prescribed.  —  The  offerer  may 
prescribe  a  particular  way  in  which  the  acceptance  must  be 
made.  For  example,  if  the  offer  is  made  by  mail  and  expressly 
requires  that  the  acceptance  shall  be  telegraphed  back,  it  will 
not  be  sufficient  to  send  the  acceptance  by  mail. 


24  CONTRACTS 

Adams  offered  by  letter  to  sell  Snow  600  bushels  of  potatoes  at  $1  per 
bushel  and  stated  in  his  letter  —  "If  you  wish  these  potatoes  at  this  price, 
wire  me  at  once."  Snow  waited  three  days  and  then  sent  Adams  a  letter 
accepting  the  offer.  There  was  no  contract,  as  the  acceptance  was  not 
made  as  prescribed. 

There   must  be  No  Qualification  in  the  Acceptance.  —  If 

Aller  offers  to  sell  his  automobile  to  Baker  for  $600,  and  Baker 
accepts  if  Aller  will  take  $300  down  and  his  note  for  the  balance 
at  30  days,  the  acceptance  is  quaHfied  and  does  not  constitute 
a  contract. 

Harper  offered  to  sell  Randell  600  tons  of  coal  for  $5  per  ton.  Randell 
replied,  "I  will  buy  500  tons  at  the  price  named."  This  was  a  qualified 
acceptance  and  no  contract  resulted. 

A  qualified  acceptance  is  a  refusal  of  the  offer  and  terminates 
the  offer.  If  Randell  after  his  first  reply  had  accepted  the  offer 
exactly  as  made,  still  no  contract  would  have  resulted,  as  there 
was  no  longer  an  offer  open  for  his  acceptance.  In  each  case, 
however,  the  reply  made  by  Randell  might  be  treated  as  a  new 
offer,  and  a  contract  would  be  created  by  Harper's  acceptance 
of  that  offer. 

An  Acceptance  is  Binding  as  soon  as  Made.  —  An  accept- 
ance is  binding  as  soon  as  made,  even  though  it  has  not  come  to 
the  knowledge  of  the  offerer.  If  the  offerer  requires  or  suggests 
a  mode  of  acceptance,  he  takes  the  risk  of  the  acceptance  reach- 
ing him.  A  common  illustration  of  this  is  the  case  of  an  offer 
made  through  the  post  ofhce,  for  in  such  a  case  it  may  be  as- 
sumed that  the  acceptance  is  to  be  made  in  the  same  way  un- 
less otherwise  expressly  stated.  When  made  in  the  required 
way,  it  is  held  that  as  soon  as  the  acceptance  is  sent  the  contract 
is  made.  And  the  completion  of  the  agreement  dates  from  the 
time  of  mailing  the  letter  or  sending  the  telegram,  and  not  from 
the  time  of  receiving  it. 

The  Merchants  Fire  Insurance  Company  wrote  they  would  insure 
Taylor's  house  for  $57.  This  letter  was  received  on  December  21,  and  on 
that  day  Taylor  accepted  the  offer  and  sent  his  letter  of  acceptance  with 
check  inclosed.  On  December  22,  and  before  Taylor's  letter  of  acceptance 
and  check  reached  the  Merchants  Fire  Insurance  Company,  the  house 
was  burned  down.  Held  that  this  contract  was  completed  when  the  letter 
of  acceptance  was  mailed,  and  therefore  the  company  was  liable. 

—  Taylor  v.  Merchants  Fire  Insurance  Co.,  9  How.  (U.  S.)  390. 


OFFER  AND  ACCEPTANCE  25 

The  offer  may  be  withdrawn  any  time  before  acceptance, 
but  the  notice  of  withdrawal  dates  from  the  time  it  reaches  the 
offeree.    The  offer  is  made  irrevocable  only  by  acceptance. 

Barron  wrote  to  Newcome  as  follows:  "I  will  sell  you  my  farm  tractor 
for  $600  and  you  may  have  ten  days  in  which  to  accept."  A  week  later 
Barron  sent  a  letter  withdrawing  the  offer,  but  before  it  was  received  by 
Newcome  he  wrote  Barron  agreeing  to  buy  the  tractor  at  the  price  named. 
As  Barron's  offer  was  accepted  by  Newcome  before  he  received  the  with- 
drawal notice  there  was  a  valid  contract  that  could  be  enforced. 

The  Parties  may  Fix  a  Time  during  which  the  Offer  will 
Remain  Open.  —  When  the  time  an  offer  is  to  remain  open  is 
fixed  by  the  parties  the  offerer  is  not  bound  to  keep  the  offer 
open  for  this  time  unless  he  is  paid  something  for  doing  so,  as 
his  promise  is  without  consideration  and  is  not  binding.  An 
offer  that  is  not  withdrawn  is  construed  to  be  open  for  a  rea- 
sonable time.  What  constitutes  a  reasonable  time  depends  en- 
tirely upon  circumstances  of  the  case,  the  relations  of  the  parties, 
and  other  facts  which  would  tend  to  determine  what  would  be 
fair  and  just  under  the  circumstances.  In  some  cases  it  might 
be  a  few  days  and  in  others  a  number  of  months. 

Stone  offered  to  sell  his  feed  store  to  Harmon  for  $2800.  No  time  was 
set  for  accepting  the  offer.  Six  months  later  Harmon  notified  Stone  that 
he  would  accept  the  offer.  Under  the  circumstances,  six  months  would 
be  an  unreasonable  time  for  Stone  to  keep  the  offer  open  and  he  would 
not  have  to  sell  his  feed  store  to  Harmon  if  he  were  not  disposed  to  do  so. 

Taking  an  Option.  —  Sometimes  an  offer  is  made  and  a 
certain  amount  is  paid  by  the  offeree  to  the  offerer  for  keeping 
the  offer  open  a  certain  length  of  time.  This  is  called  taking  an 
option  and  constitutes  an  enforceable  contract. 

An  Offer  may  Lapse.  —  The  lapse  of  an  offer  may  be  caused 
by  the  expiration  of  the  time  named  or  a  reasonable  time  or 
by  death  or  insanity  of  either  party  before  acceptance  or,  in 
the  case  of  a  partnership  or  corporation,  by  the  dissolution  of 
the  concern.  The  reason  is  that  there  are  no  longer  two  parties 
in  existence  capable  of  contracting. 

Pratt  gave  a  note  to  the  trustees  of  a  church  as  a  subscription  to 
enable  them  to  procure  a  bell.  Pratt  died  before  the  bell  was  purchased. 
Held,  that  the  note  was  an  offer  and  could  be  revoked  until  acted  upon  by 
purchasing  the  bell.  The  death  of  the  offerer  revoked  the  offer  and  the 
note  could  not  be  collected.  —  Trustees  v.  Pratt's  Estate,  93  111.  475. 


26  CONTRACTS 

Silence  not  Acceptance.  —  When  the  offerer  words  his  propo- 
sition in  such  a  way  that  silence  on  the  part  of  the  offeree  is  to 
be  considered  as  an  acceptance  of  the  offer,  the  silence  of  the 
offeree  does  not  bind  him  to  the  contract. 

"  A  man  cannot  be  forced  to  break  silence  or  be  bound  in  a 
contract." 

Broom  wrote  to  McGuire  as  follows:  "I  am  offering  potatoes  at  $2 
per  bushel  and  if  I  do  not  hear  from  you  by  return  mail  I  shall  ship  you 
500  bushels  at  this  price."  McGuire  will  not  have  to  reply  and  he  may 
refuse  to  accept  the  potatoes. 

QUESTIONS 

1.  From  what  does  a  contract  result? 

2.  Mention  some  ways  in  which  offers  may  be  made. 

3.  Explain  the  meaning  of  the  following  statements: 
"  The  offer  must  be  explicit." 

"The  acceptance  must  be  absolute." 

"  The  offer  and  acceptance  must  pertain  to  the  same  thing." 
"  The  offer  must  be  communicated  to  the  party  accepting  it." 
"  The  acceptance  must  be  made  as  prescribed." 

4.  Under  what  conditions  do  courts,  as  a  rule,  hold  that  a  reward  is 
collectible? 

5.  Can  a  man  who  works  for  another  without  his  request  or  knowl- 
edge collect? 

6.  Must  the  acceptance  be  communicated?     Explain. 

7.  What  is  a  qualified  or  modified  acceptance? 

8.  Does  a  contract  result  from  an  offer  and  a  qualified  acceptance? 

9.  When  is  an  acceptance  binding? 

10.  When  is  an  acceptance  by  mail  binding? 

1 1 .  When  may  an  offer  be  withdrawn?     When  is  a  withdrawal  effective? 

12.  How  is  an  offer  made  irrevocable? 

13.  State  the  rules  in  regard  to  the  time  of  acceptance. 

14.  State  the  way  in  which  the  offer  may  be  terminated. 

15.  What  may  cause  the  lapse  of  an  offer? 

16.  What  is  an  option?     Give  an  example. 

17.  Does  silence  ever  amount  to  an  acceptance?     Explain. 

18.  Give  an  example  of  an  offer  prescribing  a  particular  way  of  ac- 
cepting. 

4.   REALITY  OF   CONSENT 

An  agreement  resulting  from  an  offer  by  one  party  and  its 
acceptance  by  another  party  indicates  that  the  minds  of  the 
parties  have  met  on  a  definite  proposition,  but  the  one  qualify- 


REALITY  OF  CONSENT  27 

ing  element,  reality  of  consent,  may  be  lacking.  There  are  five 
different  things  that  may  deprive  an  agreement  of  reality  of 
consent:  first,  mistake;  second,  misrepresentation;  third,  fraud; 
fourth,  duress;   fifth,  undue  influence. 

Mistake.  —  A  mistake  is  a  misunderstanding,  wrong  idea,  or 
wrong  impression  relative  to  some  material  fact  connected  with 
the  contract. 

The  parties  may  not  have  meant  the  same  thing.  It  may  not 
have  been  the  intent  of  one  or  both  of  two  parties  to  make  a 
contract  into  which  they  have  been  brought  by  the  misrepre- 
sentations of  a  third  party.  Should  such  a  condition  be  occa- 
sioned by  the  carelessness  of  either  party,  he  is  not  excused; 
as  when  a  man,  able  to  read,  signs  a  contract  thinking  it  is 
something  different  from  what  it  really  is. 

Ebert,  who  had  been  induced  through  misrepresentation  to  sign  a 
promissory  note,  proved  that  at  the  time  he  signed  the  note  he  was  unable 
to  read  or  write  the  English  language,  and  that  it  was  represented  to  him, 
and  he  believed  it  to  be,  an  agreement  in  reference  t©  a  patented  machine, 
about  which  the  party  to  whom  he  gave  the  note  had  been  talking  to  him. 
Held  that  the  note,  having  been  procured  by  false  representations  as  to 
the  character  of  the  instrument  itself,  and  Ebert  being  ignorant  of  its 
character  and  having  no  intention  to  sign  such  a  paper,  the  note  was  void. 

—  Walker  v.  Ebert,  29  Wis.  194. 

The  mistake  as  to  the  nature  of  the  transaction  usually  arises 
from  some  deceit  which  ordinary  diligence  could  not  foresee  or 
from  some  accident  which  ordinary  diligence  could  not  avert. 

Again,  the  mistake  may  be  in  the  identity  of  the  one  with 
whom  the  party  deals.  X  may  enter  into  a  contract,  thinking 
and  intending  to  contract  with  Y,  when  in  fact  he  has  been 
dealing  with  Z.  There  is  no  meeting  of  their  minds,  for  X 
never  contemplated  dealing  with  Z. 

Potter  was  supplied  with  ice  by  the  Boston  Ice  Co.  and,  becoming 
dissatisfied,  terminated  his  contract  and  made  a  new  one  with  the  Citizens 
Ice  Company.  Two  years  later  this  company  sold  out  to  the  Boston  Ice  Co. 
The  court  found  that  Potter  had  no  notice  of  the  change.  Held,  the  Boston 
Ice  Co.  could  not  recover  for  ice  furnished  Potter,  as  there  was  no  meeting 
of  the  minds  of  these  parties  to  this  action.  A  man  has  a  right  to  select  and 
determine  the  persons  with  whom  he  will  deal,  and  cannot  have  others  thrust 
upon  him  without  his  consent.  —  Boston  Ice  Co.  v.  Potter,  123  Mass.  28. 

Bevington  received  an  order  for  linen  signed  ''A.  E.  Blenkarn,  753 
Broadway."     The  name  and  address  were  not  distinct  and  Bevington 


28  CONTRACTS 

thought  the  order  was  from  the  firm  of  Blenkiron  &  Co.,  783  Broadway, 
with  whom  he  had  previously  dealt.  Bevington  accepted  the  order.  There 
was  no  contract  because  of  Bevington's  mistake  as  to  the  identity  of  the 
person  with  whom  he  was  dealing. 

There  may  be  a  mistake  as  to  the  subject  matter  of  the  thing 
contracted  for,  as  where  one  party  contracts  expecting  to  re- 
ceive one  article  and  the  other  party  thinks  the  agreement  refers 
to  another.  The  parties  clearly  have  not  agreed  upon  the  same 
thing  and  the  agreement  is  void. 

It  transpired  that  Kavanagh  was  negotiating  for  one  piece  of  land  and 
Kyle  was  selling  another.  It  was  held  by  the  court  that,  as  their  minds 
did  not  meet  on  the  subject  matter,  they  could  not  be  said  to  have  entered 
into  a  contract,  and  although  there  was  no  fraud  on  the  part  of  Kyle,  the 
mistake  alone  was  a  good  defense.  —  Kyle  v.  Kavanagh,  103  Mass.  356. 

The  mistake  may  be  as  to  the  existence  of  the  thing  con- 
tracted for. 

Thwing  made  a  contract  to  sell  certain  timberlands  to  Hall,  thinking 
they  contained  seven  million  feet  of  fine  lumber.  Hall  also  believing  there 
was  good  lumber  thete.  The  facts  were  that,  unknown  to  either  party, 
the  land  had  been  practically  stripped  of  good  lumber.  Hall  sent  a  man 
who  mistook  the  location  and  reported  good  timber.  Held,  a  mutual  mis- 
take, which  was  a  sufficient  cause  for  the  court  to  cancel  the  contract. 
There  was  a  mistake  as  to  the  existence  of  the  thing  contracted  for. 

—  Thwing  V.  Hall,  40  Minn.  184. 

When  a  mutual  mistake  is  made  regarding  the  legal  effect 
of  the  contract  where  neither  party  is  at  fault,  the  contract  is 
void. 

Hughes  entered  into  a  contract  with  Morgan  to  furnish  two  auto  buses 
and  drivers  at  $40  per  day  for  service  on  a  bus  line  which  Morgan  was  going 
to  operate.  It  happened  that  Morgan  could  not  secure  a  permit  to  operate 
the  proposed  bus  line,  so  the  contract  failed.  To  have  operated  the  bus 
line  without  a  permit  would  have  been  illegal. 

Misrepresentation.  —  Misrepresentation  is  defined  as  an  in- 
nocent misstatement  of  fact  as  distinguished  from  fraud  or  a 
willful  misstatement,  and  as  thus  defined  it  is  almost,  if  not 
entirely,  identical  with  mistake. 

A  party,  in  making  a  misstatement,  either  does  it  willfully, 
which  is  fraud,  or  does  it  innocently,  which  is  a  mistake;  still 
many  writers  and  judges  make  a  distinction  between  misrepre- 
sentation and  mistake. 


REALITY  OF  CONSENT  29 

Innocent  Misrepresentation.  —  An  innocent  misrepresenta- 
tion or  nondisclosure  of  fact  does  not  vitiate  a  contract  unless 
it  belongs  to  a  special  class  of  agreements  in  which  the  utmost 
good  faith  is  required  or  is  between  persons  who  occupy  a  pe- 
culiar relation  of  trust  and  confidence  to  one  another.  Such 
contracts  are  called  uberrima  fides  (utmost  good  faith)  con- 
tracts. Examples  are  contracts  of  insurance  and  contracts  be- 
tween principal   and   agent,   parent   and   child,   etc. 

Fraud.  —  Fraud  is  a  false  representation  of  fact,  made 
either  with  a  knowledge  of  its  falsity  or  recklessly,  without 
belief  in  its  truth,  with  the  intention  of  having  it  acted  upon 
by  another  party,  and  actually  inducing  him  to  act  upon  it  to 
his  damage.  Where  fraud  enters  into  the  making  of  a  con- 
tract, the  contract  will  not  only  be  voidable,  but  the  party 
guilty  of  committing  the  fraud  is  liable  to  a  criminal  action. 

A  party  about  to  purchase  a  farm  asked  the  owner  whether  the  neigh- 
borhood was  sickly  or  not,  and  declined  to  purchase  if  it  was.  The  owner 
assured  him  that  it  was  free  from  sickness,  whereas  fever  and  ague  were 
prevalent  in  the  locality.  The  court  held  that  the  agreement  to  purchase 
could  not  be  enforced,  it  having  been  induced  by  the  vendor's  misrepre- 
sentations.—  Holmes's  Appeal,  77  Pa,  State  50. 

Fraud  may  also  arise  where  there  is  active  or  artful  con- 
cealment. 

Jones  bought  a  horse  which  had  a  sweeny,  stiffness  in  the  neck,  and 
other  ailments.  He  cut  the  cords  of  his  neck  and  doctored  him  up.  Later 
Edwards  came  and  wanted  to  buy  a  farm  team.  Jones  showed  him  this 
one  and  another  horse,  saying  they  were  sound,  as  far  as  he  knew,  but  that 
he  never  warranted  a  horse.  He  did  not  say  a  word  as  to  the  former  ail- 
ments. Held,  that  it  was  fraud  on  the  part  of  Jones  in  not  acquainting 
Edwards  with  conditions  affecting  the  value  of  the  horse,  which,  if  known, 
would  have  prevented  him  from  buying. — Jones  v.  Edwards,  i  Nebr.  170. 

One  who  conceals  a  fact  which  he  ought,  as  a  legal  duty,  to 
disclose  is  guilty  of  fraud. 

In  an  action  upon  a  life  insurance  policy,  the  defense  was  fraud  in 
obtaining  it.  In  the  physician's  examination  it  was  asked  whether  insurer 
had  cough,  occasional  or  habitual  expectoration,  or  difficulty  in  breathing. 
The  answer  was,  "No  cough;  walking  fast  upstairs  or  up  hill  produced 
difficulty  in  breathing."  The  facts  were  that  he  had  raised  blood  for  two 
and  one  half  years  and  that  he  died  three  months  after  the  policy  was  issued. 
Held,  that  there  was  a  fraudulent  concealment  and  misrepresentation  which 
would  avoid  the  policy. 

—  Smith  V.  jEtna  Life  Insurance  Company,  49  N.  Y.  211. 


30  CONTRACTS 

The  false  representation  may  arise  from  the  suppression  of 
the  truth,  amounting  to  the  suggestion  of  a  falsehood. 

Grigsby  sold  Stapleton  a  herd  of  cattle  at  the  ordinary  market  price, 
knowing  that  they  had  Texas  fever,  a  disease  not  easily  detected  by  one 
having  had  no  experience  with  it.  He  did  not  disclose  this  to  Stapleton. 
Held,  that  Grigsby  was  guilty  of  a  fraudulent  concealment,  for  which  he 
was  liable.  —  Grigsby  v.  Stapleton,  94  Mo.  423. 

Mere  nondisclosure  does  not  vitiate  a  contract  unless  the 
parties  stand  in  a  relation  of  confidence  to  each  other,  and  one 
party  has  the-  means  of  knowing  facts  that  are  inaccessible  to 
the  other.  He  is  then  bound  to  tell  everything  that  is  Hkely 
to  affect  the  other  party's  judgment. 

King  bought  of  Knapp  at  an  auction  sale  a  lot  in  the  city  of  New  York, 
paying  ten  per  cent  down.  Printed  handbills  were  circulated  containing 
a  diagram  of  the  lot,  which  represented  it  to  be  25  x  100  feet,  the  handbill 
also  stating  this  to  be  the  size.  Relying  on  the  description.  King  purchased 
the  premises  without  inspection.  As  a  matter  of  fact  a  building  upon  the 
adjoining  lot  encroached  upon  the  premises.  This  was  known  to  Knapp, 
but  there  was  no  mention  of  it  in  the  handbills  or  at  the  sale.  King  refused 
to  complete  the  sale  and  brought  action  to  recover  the  amount  paid. 
Held,  King  had  bought  under  the  suppression  of  a  material  fact,  and  the 
contract  could  not  be  upheld.  —  King  v.  Knapp,  59  N-  Y.  462. 

It  is  held  also  that  in  contracts  for  the  sale  of  shares  of  stock 

in  a  company  the  utmost  candor  and  fullness  of  statement  are 

required  of  the  promoter  and  of  those  who  make  statements 

upon  the  strength  of  which  purchasers  subscribe. 

Hatch,  a  supposed  representative  of  a  certain  mining  company,  repre- 
sented to  Barns,  a  prospective  purchaser  of  shares  of  stock,  that  the  com- 
pany was  doing  a  business  of  a  million  a  month;  that  it  had  paid  a  divi- 
dend of  10  per  cent  from  the  beginning,  and  as  a  result  of  the  enormous 
business  it  was  doing  the  dividends  would  be  increased.  On  the  strength 
of  these  statements,  which  were  all  false.  Barns  subscribed  for  one  hun- 
dred shares  of  stock  at  ten  dollars  each  to  be  paid  for  in  ten  installments 
of  one  hundred  dollars  each.  Barns,  learning  the  facts,  can  avoid  the 
contract  and  Hatch  is  liable  to  criminal  action. 

The  statement,  in  order  to  render  the  contract  voidable  be- 
cause of  fraud,  must  be  a  misrepresentation  of  fact.  A  mere  ex- 
pression of  opinion  which  turns  out  to  be  without  foundation 
or  a  statement  of  intention  which  is  not  carried  out  will  not 
invalidate  the  contract. 

Butler  borrowed  money  of  Gordon  and  gave  as  security  a  mortgage 
upon  real  estate  containing  some  sandstone  quarries  which  had  not  been 


REALITY  OF  CONSENT  31 

sufficiently  worked  to  show  their  value.  Butler  furnished  the  certificates 
of  two  persons,  saying  they  had  lived  near  the  place  for  twenty  years  and 
giving  the  value  of  the  property  in  their  best  judgment  to  be  an  amount 
one  hundred  and  fifty  per  cent  more  than  the  loan.  Upon  a  sale  under 
foreclosure  the  land  brought  one  sixth  of  the  amount  of  the  loan.  Gordon 
sued,  charging  fraud.  Held,  he  could  not  recover;  that  an,  action  will 
not  lie  for  an  expression  of  opinion,  however  inaccurate,  in  regard  to  the 
value  of  property  which  depends  upon  contingencies  that  may  never 
happen.  —  Gordon  v.  Butler,  105  U.S.  553. 

The  representation  must  be  a  statement  of  something  that 
exists  or  has  happened;  for  instance,  that  a  wagon  cost  $50 — 
not  that  the  wagon  is  worth  $50,  which  would  be  a  statement  of 
opinion,  or  that  if  you  buy  this  wagon  you  can  sell  it  again  in 
the  spring  for  $50,  as  this  is  merely  a  prediction  for  the  future. 

The  law  tolerates  considerable  prevaricating  by  the  trades- 
man, in  the  matter  of  pufhng  his  goods  or  wares,  provided  the 
thing  bargained  for  is  open  to  the  inspection  of  the  buyer. 

Poland  bought  out  a  half  interest  in  Brownell's  stock  of  goods  and 
business.  He  looked  over  the  stock  and  books  and  had  ample  opportunity 
to  investigate.  Held  that  he  had  no  right  to  hold  the  seller  upon  his  repre- 
sentations of  the  value  of  the  goods  or  the  amount  of  business  he  had 
previously  done.  The  Judge  said,  ''It  is  everywhere  understood  that  such 
statements  and  commendations  are  to  be  received  with  great  allowance 
and  distrust."  —  Poland  v.  Brownell,  131  Mass.  138. 

The  representation,  in  order  to  render  the  contract  voidable 
because  of  fraud,  must  be  made  with  a  knowledge  of  its  falsity 
or  without  behef  in  its  truth. 

Cowley  brought  an  action  for  fraud  in  that  Mrs.  Dobbins  represented 
to  hirn  that  William  Dobbins  left  an  estate  of  $40,000  above  all  liabilities, 
whereas  in  truth  he  was  insolvent.  The  evidence  showed  that  Mrs.  Dob- 
bins believed  her  representations  to  be  true.  Held  that  Cowley  had  no 
cause  of  action.  —  Cowley  v.  Dobbins,  136  Mass.  401. 

If  a  man  makes  a  false  statement,  honestly  believing  it  to  be 
true,  he  is  not  liable  for  fraud.  He  can  be  held  only  when  he 
knows  it  to  be  false  or  has  no  knowledge  either  of  its  truth  or 
falsity.  The  false  statement  must  be  made  with  the  intention 
of  its  being  acted  upon,  either  by  the  party  to  whom  it  is  made, 
or  by  others  to  whom  that  party  communicates  it. 

Avery  made  false  representations  to  a  mercantile  agency  as  to  the 
financial  responsibility  of  the  firm  of  Avery  &  Reggins,  of  which  he  was 
a  memb«r.    This  firm  asked  credit  of  Eaton,  who  went  to  the  mercantile 


32  CONTRACTS 

agency  and  obtained  the  information  given  by  Avery,  and  relying  on  this 
he  extended  the  firm  credit.  In  an  action  for  fraud  it  was  held  that  the 
purpose  for  which  such  information  is  given  to  mercantile  agencies  is  to 
enable  them  to  furnish  it  to  their  subscribers  for  guidance  in  extending 
credit;  and  that  Avery  would  therefore  be  liable,  as  the  case  justified  the 
finding  that  the  false  statements  were  made  with  the  intent  to  defraud  any 
person  who  might  inquire  of  the  agency.  —  Eaton  v.  Avery,  83  N.  Y.  31. 

The  false  representation  must  actually  deceive,  as  in  the  case 
of  Eaton  v.  Avery.  If  Eaton  had  not  been  deceived  by  the 
information,  he  could  not  have  succeeded  in  his  suit. 

The  effect  of  fraud  on  a  contract  is  to  give  the  injured  party 
grounds  for  an  action  for  damages  for  deceit.  And  the  person 
who  has. been  led  into  a  contract  by  means  of  the  fraudulent 
misrepresentations  may  either  afhrm  the  contract  and  compel 
the  fulfillment  of  the  agreement  or  he  may  avoid  it,  provided 
that  he  signifies  his  intention  to  do  so  as  soon  as  he  becomes 
aware  of  the  fraud.  If  he  accepts  any  benefits  under  the  con- 
tract after  he  learns  of  the  fraud,  the  contract  is  affirmed. 

Duress.  —  Duress  is  actual  or  threatened  violence  or  un- 
prisonment  exercised  upon  a  man,  or  some  member  of  his  im- 
mediate family,  whereby  he  is  forced  to  do  some  act  against 
his  will.  To  amount  to  duress,  the  power  to  put  the  threat  into 
execution  must  be  apparent. 

A  contract  entered  into  by  a  party  under  duress  is  voidable 
at  his  option.  The  duress  must  be  inflicted  or  threatened  by  a 
party  to  the  contract  or  one  acting  for  him  and  with  his  knowl- 
edge, and  the  subject  of  the  duress  must  be  the  contracting 
party  himself  or  his  wife,  parent,  or  child. 

Morrill  procured  several  promissory  notes  to  be  executed  by  Night- 
ingale under  coercion  and  intimidation,  caused  by  threats  of  arrest,  and 
he  also  had  a  warrant  of  arrest  issued  by  a  Justice  of  the  Peace,  not  for  the 
purpose  of  punishing  Nightingale  for  a  crime  but  to  compel  him  to  pay 
the  money  or  execute  the  notes.  Held,  that  this  constituted  duress  and 
was  a  good  defense  to  the  action  to  recover  on  the  notes. 

—  Morrill  v.  Nightingale,  93  Calif.  452. 

At  common  law  wrongful  detention  of  goods  did  not  con- 
stitute duress,  but  by  the  modern  doctrine  threats  of  destruc- 
tion or  detention  of  goods  constitute  duress  and  will  avoid  a 
contract.  Duress  may  also  consist  of  threats  of  illegal  or  wrong- 
ful imprisonment  or  of  resort  to  criminal  prosecution  for  an 


REALITY  OF  CONSENT  2>2> 

improper  purpose.  Threatened  arrest  in  lawful  prosecution  does 
not  constitute  duress. 

Undue  Influence.  —  In  the  creation  of  a  contract  undue  influ- 
ence arises  where  the  parties  are  not  on  an  equality  as  to  knowl- 
edge or  capacity. 

A  promise  made  by  a  child  to  its  parent,  a  client  to  his  at- 
torney, a  patient  to  his  physician,  a  ward  to  his  guardian,  or  a 
person  to  his  spiritual  adviser,  will  not  necessarily  be  set  aside 
by  the  court,  but  such  relations  call  for  clear  evidence  that  the 
party  benefited  did  not  take  advantage  of  his  position. 

Buckholz  was  the  stepfather  of  Tucke,  who  had  been  accustomed  for 
many  years  to  obey  him  implicitly  and  to  rely  on  him  in  all  business  mat- 
ters. When  Tucke  came  of  age  Buckholz  induced  him  to  execute  deeds 
of  his  property  for  less  than  one  half  its  value,  telling  him  he  was  likely 
to  lose  the  land  and  making  requests  that  were  practically  commands. 
Held,  the  deeds  were  obtained  by  undue  influence  and  should  be  set  aside. 

—  Tucke  V.  Buckholz,  43  Iowa  415. 

Undue  influence,  like  duress,  renders  the  contract  voidable 
at  the  instance  of  the  injured  party. 

A  guardian  induced  his  ward  to  accept  certain  shares  of  stock  in  set- 
tlement of  a  balance  due  to  the  ward,  representing  that  the  stock  was  a 
good  investment  and  would  pay  good  dividends,  whereas  it  was  purely 
speculative.  Held,  a  transaction  between  a  guardian  and  his  ward  re- 
quires the  utmost  good  faith  on  the  part  of  the  guardian  and  this  transac- 
tion should  be  set  aside  at  the  request  of  the  ward. 

—  McConkey  v.  Cockey,  69  Md.  286. 

QUESTIONS 

1.  What  does  an  agreement  between  the  parties  to  a  contract  indi- 
cate? 

2.  Mention  five  different  things  that  may  deprive  an  agreement  of 
reality  of  consent. 

3.  What  is  a  mistake  as  applied  to  a  contract? 

4.  Can  a  man,  able  to  read,  who  signs  a  contract  without  reading  it, 
be  held  liable? 

5.  Give  an  example  of  each  of  the  five  kinds  of  mistakes. 

6.  Distinguish  between  misrepresentation  and  fraud. 

7.  How  does  an  innocent  misrepresentation  affect  a  contract? 

8.  When  does  a  misrepresentation  amount  to  fraud?     Give  example. 

9.  Where  fraud  enters  into  the  contract  what  is  the  effect? 

10.  In  what  different  ways  may  fraud  arise? 

11.  What  is  the  effect  of  nondisclosure? 


34  CONTRACTS 

12.  Will  a  mere  expression  of  opinion  affect  a  contract? 

13.  When  can  a  man  who  makes  a  false  statement  be  held  liable? 

14.  What  happens  if  a  defrauded  party  accepts  benefits  under  the  con- 
tract after  he  learns  of  the  fraud? 

15.  What  is  duress?     Give  an  example.     What  is  the  effect? 

16.  How  will  undue  influence  affect  a  contract?     Give  an  example. 

17.  Is  fraud  an  actionable  wrong?     Explain. 


5.   SUBJECT  MATTER 

Subject  Matter  of  a  Contract.  —  The  subject  matter  of  a 
contract  is  that  which  the  promisee  agrees  to  do  or  not  to  do, 
or  about  which  the  contract  is  made.  It  is  the  act  or  thing  to 
which  the  agreement  relates. 

Harris  enters  into  a  contract  with  Evans  &  Co.  whereby  Evans  &  Co. 
is  to  build  a  pleasure  boat,  according  to  a  certain  design,  for  Harris.  The 
boat  is  the  subject  matter  of  the  contract. 

The  subject  matter  of  a  contract  may  be  anything  of  value, 
credits,  or  services. 

The  Object  of  a  Contract  must  Not  be  Unlawful. —  The 
object  of  the  contract  must  not  be  contrary  to  law.  Certain 
things  are  forbidden  by  law,  and  if  these  things  are  in  the  con- 
templation of  the  parties  at  the  time  the  contract  is  entered 
into,  it  is  not  enforceable;  otherwise  the  law  would  be  aiding 
in  an  indirect  way  what  it  expressly  forbids. 

The  contracts  usually  forbidden  by  law  are  gambling  or 
wagering  contracts,  contracts  for  usury  (interest  in  excess  of 
the  legal  rate),  and,  in  some  states,  contracts  for  unnecessary 
acts  to  be  performed  on  Sunday. 

This  principle  applies  only  to  executory  contracts,  for  if  the 
contract  has  been  voluntarily  executed  by  the  parties  it  is  bind- 
ing; th^  law  will  not  compel  the  return  of  anything  acquired 
under  such  a  contract  any  more  than  it  will  compel  its  perform- 
ance. The  rule  is  that  if  parties  have  voluntarily  completed  a 
contract,  illegal  as  to  the  subject  matter,  the  law  will  leave  them 
where  they  are. 

Illegal  Objects.  —  The  object  of  the  contract  may  be  illegal 
by  express  statutory  enactment  or  because,  of  rules  of  the  com- 
mon law.    The  statutes  declare  some  contracts  illegal  and  void. 


SUBJECT  MATTER  35 

and  impose  a  penalty  for  the  making  of  some  others  without 
rendering  the  contracts  void.  A  statute  requiring  a  lawyer  or  a 
physician  to  be  licensed  renders  a  contract  made  without  com- 
pliance with  it  void. 

Buckley,  acting  as  a  real  estate  broker  in  Chicago,  purchased  certain 
property  for  Humason.  The  ordinance  of  Chicago  required  all  real  estate 
brokers  to  be  licensed  and  fixed  the  license  fee  at  $25,  providing  a  penalty 
for  its  violation.  Buckley  at  this  time  had  no  license.  In  an  action  for  his 
commissions  it  was  held  that  he  could  recover  nothing  for  his  services. 
Business  transacted  in  violation  of  law  cannot  be  the  foundation  of  a  valid 
contract.  —  Btickley  v.  Humason,  50  Minn.  195. 

In  the  above  case,  if  the  contract  had  been  executed,  the 
money  paid  could  not  be  recovered.  When  an  illegal  contract 
has  been  executed  the  law  leaves  the  parties  where  they  are. 

A  law  requiring  weights  and  measures  to  be  sealed,  as  a  con- 
dition precedent  to  a  sale  of  goods  by  a  merchant,  renders  a 
contract  made  in  violation  thereof  void. 

A  Massachusetts  statute  provided  that  all  oats  and  meal  should  be 
bargained  for  and  sold  by  the  bushel.  Held,  the  seller  could  not  recover  the 
price  of  the  meal  and  oats  sold  by  the  bag. —  Eaton  v.  Kegan,  1 14  Mass.  433. 

Sometimes  a  statute  simply  imposes  a  penalty  and  does  not 
invalidate  the  contract. 

Where  a  city  has  an  ordinance  requiring  a  license  of  a  peddler  before 
he  is  allowed  to  sell  his  wares  a  penalty  is  imposed  for  violation  of  this 
ordinance,  but  usually  any  contracts  which  he  made  before  he  secured  a 
license  are  allowed  to  stand. 

In  this  country  statutes  against  wagers  or  bets  have  been 
passed  in  most  of  the  states,  and  all  wagers  are  now  practically 
declared  contrary  to  pubhc  poHcy  and  void. 

Love  made  a  wager  of  $20  with  Harvey  that  the  body  of  one  Dr.  Cahill 
was  buried  on  a  certain  side  of  the  main  avenue  in  Holywood  cemetery. 
The  stakeholder,  although  forbidden  so  to  do,  paid  the  $40  left  with  him 
to  Harvey.  Held,  that  all  wagers  are  unlawful.  The  party  receiving  the 
money  from  the  stakeholder  after  being  forbidden  to  receive  it  is  liable  to 
the  other  for  a  return  of  the  money,  even  though  he  be  the  winner  of  the 
wager.  —  Love  v.  Harvey,  114  Mass.  80. 

Adams  and  Corbin  enter  into  a  contract  whereby  if  Adams's  horse  wins 
a  race  with  Corbin's  horse,  Corbin  shall  pay  Adams  $100,  but  if  Corbin's 
horse  wins  the  race,  Adams  shall  pay  Corbin  $100.  Adams's  horse  won  the 
race  and  Corbin  paid  the  $100.  Afterwards  Corbin  learned  that  wagering 
contracts  were  illegal  in  his  state  and  he  attempted  to  recover  the  $100  paid. 
As  the  contract  was  completed  Corbin  had  no  redress. 


36  CONTRACTS 

Statutes  in  many  states  also  prohibit  the  desecration  of  the 
Sabbath  day,  and  any  contract  entered  into  on  that  day  con- 
trary to  the  statutes  is  void.  It  is  generally  held  that  a  contract 
entered  into  on  Sunday  to  be  performed  on  any  other  day  is 
valid,  if  the  parties  thereto  recognize  it  as  valid  on  a  subsequent 
week  day,  while  a  contract  entered  into  at  any  time  which  is 
to  be  performed  on  Sunday  is  void.  Statutes  in  the  different 
states  vary  in  this  regard. 

Sunday  contracts  which  result  from  necessity  such  as  calling 
a  doctor,  or  contracts  which  do  not  concern  worldly  business 
such  as  contracts  in  aid  to  a  church,  are  not  affected  by  the 
statutes. 

The  court  held,  in  an  action  on  a  promissory  note  made  on  Sunday, 
that  contracts  made  on  Sunday  are  void,  and  a  promissory  note  made  upon 
that  day  will  not  support  an  action.  —  Clough  v.  Goggins,  40  Iowa  325. 

In  some  states  it  is  illegal  for  one  to  follow  his  *'  ordinary 
calling  "  or  work;  in  others,  to  make  any  contracts,  etc.  The 
different  statutes  differ  so  materially  that  no  general  rule  can  be 
laid  down  as  to  what  acts  are  prohibited. 

Aside  from  the  contracts  declared  unlawful  and  void  by 
statute,  there  are  contracts  which  are  illegal  at  common  law. 
The  courts  will  not  enforce  an  agreement  to  commit  a  crime  or 
to  do  a  civil  wrong. 

Held,  that  in  a  composition  of  a  debtor  with  his  creditors,  any  contract 
with  one  of  them  whereby  he  is  to  receive  more  than  his  pro  rata  share  is 
void  and  any  security  given  upon  such  a  promise  is  void. 

—  White  V.  KuntZj  107  N.  Y.  518. 

Contracts  Against  Public  Policy.  —  All  contracts  which  if  en- 
forced would  be  contrary  to  the  good  of  the  public  or  opposed 
to  the  welfare  of  the  community,  are  said  to  be  against  public 
policy  and  therefore  void.  Those  contracts  which  tend  to  injure 
the  government  in  its  relations  witli  other  countries,  those  with 
alien  enemies  which  involve  any  communication  over  the  border 
line,  and  those  in  restraint  of  trade  are  illustrations  of  this  class 
of  contracts. 

A  contract  to  break  a  law  of  a  sister  state  is  also  against 
pubHc  policy. 

Agreements  to  prevent  or  hinder  the  course  of  justice  are 


SUBJECT  MATTER  37 

illegal;  as,  to  agree  to  conceal  a  crime  of  which  one  has  knowl- 
edge, to  refrain  for  a  certain  consideration  from  prosecuting  a 
criminal,  to  agree  not  to  testify  as  a  witness,  to  influence  a  wit- 
ness's testimony,  or  to  bribe  a  juror. 

Held,  that  a  contract  to  deed  a  certain  piece  of  property,  where  the 
real  consideration  was  an  agreement  to  drop  a  criminal  prosecution  against 
the  grantor's  son,  was  void  as  against  public  policy. 

—  Partridge  v.  Hood,  120  Mass.  403. 

A  contract  tending  to  injure  the  public  service  is  contrary  to 
public  policy  and  therefore  void  —  for  example,  an  agree- 
ment by  a  public  officer  to  assign  his  salary  to  a  creditor,  or  an 
undertaking  to  influence  the  action  of  a  legislature  by  lobbying, 
or  an  agreement  to  hinder  or  prevent  competition  for  public 
contracts. 

Agreements  which  tend  to  promote  and  encourage  Htigation 
are  also  void;  that  is,  it  is  not  legal  to  speculate  in  lawsuits. 
A  may  have  a  cause  of  action  against  B  but  it  is  not  lawful  for 
C  to  buy  the  action  for  the  purpose  of  instituting  suit.  The 
rule  was  formerly  more  strict  than  now.  The  holding  in  most 
states  at  the  present  time  is  that  an  attorney  can  institute  a  suit 
on  a  "contingent  fee,"  which  means  that  he  is  to  receive  for  his 
services  a  percentage  of  what  he  recovers.  In  the  earlier  days 
this  was  forbidden. 

Agreements  contrary  to  good  morals  are  illegal.  So  also  are 
contracts  which  affect  the  freedom  or  security  of  marriage,  as 
an  agreement  not  to  marry,  and  contracts  made  in  consideration 
of  the  procuring  or  bringing  about  of  a  marriage,  or  mutual 
agreements  to  obtain  a  divorce. 

Restraint  of  Trade. — There  is  another  class  of  agreements, 
known  as  contracts  in  unreasonable  restraint  of  trade,  which  are 
prohibited  by  law  as  against  public  policy.  It  is  for  the  good  of 
the  community  and  the  welfare  of  the  individual  that  compe- 
tition in  trade  should  exist  and  that  every  man  should  be  free 
to  engage  in  the  occupation  or  vocation  he  may  prefer.  Still  it 
is  but  fair  that  a  man  in  selling  out  his  business  shall  include 
with  it  the  good  will,  and  refrain  from  opening  up  a  like  busi- 
ness at  the  next  door  or  on  the  same  street.  The  rule  is^  there- 
forey  that  if  the  restraint  imposed  upon  the  one  party  is  not 


38  CONTRACTS 

greater  than  the  protection  the  other  party  requires,  the  contract 
is  valid. 

Martin  sold  his  lumber  business,  situated  in  Denver,  to  Long  and 
agreed  not  to  engage  in  the  lumber  business  for  a  period  of  five  years.  This 
is  a  contract  in  general  restraint  of  trade  and  cannot  be  enforced.  If 
Martin  had  agreed  in  writing  not  to  engage  in  the  lumber  business  in  the 
city  of  Denver  for  a  period  of  five  years,  this  would  have  been  a  contract 
in  reasonable  -restraint  of  trade  and  would  have  been  enforceable. 

From  the  nature  of  the  case  it  will  be  seen  that  a  covenant  to 
refrain  from  engaging  in  the  same  business  within  the  same 
city  might  be  reasonable  in  a  grocery  business,  while  in  another 
business,  the  limitation  of  the  whole  state  would  be  only  just,  as 
in  the  case  of  a  manufacturer  of  heavy  machinery  requiring  a 
wider  territory  for  his  sales. 

Dandelet  sold  his  dyeing  and  scouring  establishment,  and  leased  the 
premises  to  Guerand,  entering  into  a  covenant  that  he  would  not  at  any 
time  thereafter  engage  in  a  like  business  in  the  city  of  Baltimore.  Held, 
that  this  covenant  was  valid,  as  it  was  not  too  comprehensive  in  its  restric- 
tion. —  Guerand  v.  Dandelet,  32  Md.  561. 

Roeber,  who  was  engaged  in  the  manufacture  and  sale  of  matches 
throughout  the  United  States,  sold  his  stock  of  machinery  and  good  will 
to  Diamond  Match  Co.  He  covenanted  that  he  would  not,  at  any  time 
within  ninety-nine  years,  engage  in  such  business  in  any  of  the  states  or 
territories  except  Nevada  and  Montana.  Held,  that  the  covenant  was 
valid,  as  the  restraint  was  reasonable  considering  the  interests  to  be  pro- 
tected.—  Diamond  Match  Co.  v.  Roeber,  106  N.  Y.  473. 

Perry  sold  his  patent  on  a  sandpapering  machine  to  Berlin  Machine 
Works  and  in  the  contract  agreed  "not  to  manufacture,  sell,  or  cause  to  be 
sold  any  sandpapering  machines  of  any  description."  He  violated  the 
agreement  and  Berlin  Machine  Works  sued  for  an  injunction  and  damages. 
It  was  held  that  the  agreement  was  not  a  just  and  lawful  protection  to  the 
business  of  manufacturing  and  selling  under  the  patent,  was  in  unreasonable 
restraint  of  trade,  and  therefore  void. 

—  Berlin  Mack.  Works  v.  Perry,  71  Wis.  495. 

QUESTIONS 

1.  What  is  the  subject  matter'  of  a  contract?     Give  an  example. 

2.  What  may  be  the  subject  matter  of  a  contract? 

3.  Can  an  illegal  object  be  the  subject  matter  of  a  contract?    Ex- 
plain. Mention  some  illegal  objects. 

4.  What  contracts  are  usually  forbidden  by  law? 

5.  Will  courts  entertain  an  action  based  on  an  illegal  contract?    Ex- 
plain. 

6.  Can  a  lawyer  or  physician  practice  in  your  state  without  a  license? 


CONSIDERATION  39 

7.  How  does  the  law  regard  contracts  made  on  Sunday?    What  is  the 
law  of  your  state? 

8.  Mention  a  contract  which  would  be  against  public  policy. 

9.  Is  there  any  difference  in  effect  between  an  illegal  agreemant  and 
one  against  public  policy? 

10.  What  is  the  effect  of  a  contract  in  violation  of  an  existing  law? 

11.  Are  wagering  contracts  lawful  in  your  state? 

12.  Explain  the  meaning  of  "in  restraint  of  trade." 

13.  Under  what  conditions  are  contracts  in  restraint  of  trade  binding? 

14.  Distinguish  between  general  restraint  of  trade  and  reasonable  re- 
straint of  trade.     Give  an  example  of  each. 

6.   CONSIDERATION 

Consideration  in  an  Executory  Contract.  —  Consideration  is 
the  inducement  to  a  contract.  There  must  be  some  act  or 
thing  of  value  given  or  promised  by  the  promisee  in  order  to 
make  the  promise  of  the  promisor  enforceable,  unless  the  terms 
thereof  are  fully  carried  out  or  executed.  Therefore  there  must 
be  consideration  in  every  executory  contract. 

Jackson  offered  Hart  $500  for  the  automobile  he  was  driving.  Hart  ac- 
cepted the  offer  and  a  sale  resulted.  The  $500,  which  was  the  considera- 
tion, was  what  induced  Hart  to  sell  his  automobile. 

A  contract  under  seal  is  in  a  way,  under  the  common  law,  an 
exception,  for  the  seal  is  said  to  import  a  consideration,  and  the 
instrument  being  sealed,  no  other  evidence  of  consideration  is 
required.  Now,  however,  in  a  few  of  the  states,  the  seal  is  by 
statute  regarded  as  only  a  presumption  of  consideration  in  an 
executory  contract  and  is  not  sufhcient  without  some  actual  con- 
sideration. But  if  the  seal  is  used  on  a  gratuitous  promise  for 
the  purpose  of  creating  a  consideration,  the  effect  is  the  same 
as  at  common  law. 

A  father  gave  his  daughter  a  written  instrument  under  seal  by  which 
he  promised  to  pay  her  $312.  This  was  understood  to  be  a  part  of  the 
money  which  the  father  had  owed  his  wife,  now  deceased,  and  he  felt  it 
should  go  to  the  daughter,  although  there  was  no  legal  oJDligation.  The 
defense  to  this  promise  was  want  of  consideration.  Held,  that  as  the  prom- 
ise was  intended  to  be  a  gratuitous  one  the  seal  imported  sufficient  con- 
sideration. — •  Aller  V.  Aller,  40  N.  J.  Law  446. 

The  Consideration  must  have  Value.  —  While  consideration 
is  an  essential  element  of  every  legally  enforceable  contract, 


40  CONTRACTS 

it  is  not  necessary  that  the  consideration  be  adequate  in  value 
to  the  thing  promised,  but  it  must  be  of  some  value  in  the  eyes 
of  the  law.  It  will  be  seen  that  it  would  be  impossible  for  the 
courts  to  require  an  adequate  or  full  consideration,  as  they 
would  then  have  to  determine  the  merits  of  every  bargain. 

A  may  elect  to  sell  a  piece  of  jewelry  worth  $ioo  to  B  fo^ 
$io.  The  fact  that  the  consideration  is  not  equal  to  the  value  of 
the  article  does  not  affect  the  contract.  An  article  worth  $1000, 
or  any  amount,  might  be  transferred  by  sale  to  the  purchaser 
in  consideration  of  $1,  or  any  amount,  being  paid.  In  the 
absence  of  fraud  the  contract  would  be  good. 

Moore  came  into  possession  of  a  watch  which  he  sold  to  Lambert  for 
$10.  Shortly  afterwards  Moore  learned  that  the  watch  was  valuable  and 
easily  worth  $100.  He  tried  to  collect  $90  from  Lambert.  As  fraud  had  not 
been  practiced,  Moore  could  not  recover.  Courts  will  not  attempt  to  make 
bargains  for  people. 

The  Consideration  must  be  Legal.  —  The  doing  or  promising 
to  do  an  illegal  act  is  not  sufhcient  consideration  to  support  an 
agreement. 

It  was  held  that  a  contract  to  pay  money  in  consideration  of  the  ab- 
duction of  a  person  is  unenforceable  and  void. 

—  Barker  v.  Parker,  23  Ark.  390. 

McBratney,  an  attorney,  sued  for  services  in  presenting  the  claim  of 
the  Miami  Indians  at  Washington.  It  was  contended  that  the  services 
were  those  of  a  lobbyist  and  illegal.  The  court  held  it  was  for  the  jury  to 
decide  whether  the  services  were  those  of  an  attorney  in  drawing  papers 
and  making  agreements,  or  of  a  lobbyist  in  influencing  the  legislators. 
If  the  former,  he  could  recover;  if  the  latter,  the  consideration  was  illegal 
and  void,  and  he  could  not  recover.  If  for  both,  the  illegal  part  of  the 
consideration  vitiated  and  avoided  the  whole  contract. 

—  McBratney  v.  Chandler,  22  Kans.  692. 

A  Consideration  must  be  Possible.  —  A  promise  to  do  an  im- 
possible act  is  never  a  sufficient  consideration  to  support  a 
promise.  This  does  not  mean  a  mere  pecuniary  impossibility, 
but  an  obvious  physical  impossibility.  The  non-existence  of  the 
thing  given  as  consideration  would  render  the  consideration  void 
and  a  promise  m^de  thereon  invalid. 

Strong  contracted  to  travel  for  Harper  and  Company  for  one  year; 
during  this  time  he  was  to  represent  them  in  every  state  in  the  United 
States,  and  spend  at  least  two  weeks  in  each  state.  This  was  a  physical 
impossibility  and  the  contract  was  void. 


CONSIDERATION  41 

The  Consideration  must  be  Present  or  Future.  —  A  past 
consideration  is  no  consideration  at  all,  for  it  confers  no  value. 
It  is  simply  some  act  or  forbearance  in  time  past,  which  has 
been  conferred  without  bringing  about  any  legal  liability.  If 
afterwards,  from  a  feeling  of  thankfulness  or  good  will,  a  promise 
is  made  to  the  person  by  whose  acts  or  forbearance  the  promisor 
has  been  benefited,  such  promise  is  gratuitous  and  cannot  be 
enforced. 

James  Kingston,  the  son  of  a  wealthy  merchant,  was  taken  ill  while 
traveling  some  distance  from  home  and  strangers  cared  for  him  for  several 
weeks  until  he  recovered.  His  father,  when  he  heard  of  this,  promised  to 
pay  the  strangers  $1000  for  what  they  had  done  for  his  son.  As  this  promise 
was  made  after  the  son  had  been  cared  for,  it  could  not  be  enforced.  This 
is  an  example  of  a  moral  obligation,  but  no  legal  obligation  existed. 

Bowman  was  nominated  for  senator.  Dearborn  rendered  services  and 
furnished  literature  to  advance  Bowman's  cause,  but  without  any  solici- 
tation on  Bowman's  part.  After  the  election  Bowman  gave  Dearborn 
his  note  for  $60  for  such  services.  The  court  held  that  the  note  was  void 
for  want  of  consideration.  Past  performance  of  services  constitutes  no 
consideration  for  an  express  promise,  unless  the  services  were  performed  at 
the  express  or  implied  request  of  the  defendant. 

—  Dearborn  v.  Bowman,  3  Met.  (Mass.)  155. 

Some  courts  hold  that  if  there  was  an  express  or  implied 
request  when  the  act  was  performed,  the  subsequent  promise  is 
supported  by  a  consideration,  as  the  request  showed  that  the 
promisor  intended  to  pay  for  the  act.  So  in  the  example  last 
cited  if  Bowman  had  requested  Dearborn  to  render  the  services, 
Bowman's  subsequent  promise  to  pay  would  have  been  enforce- 
able. 

Consideration  in  an  Executed  Contract.  —  A  contract  that 
has  been  executed  will  not  be  set  aside  because  of  lack  of  con- 
sideration; it  is  therefore  those  contracts  which  have  not  yet 
been  carried  out  that  we  are  to  consider. 

*  Matthews  purchased  of  Smith  a  quantity  of  fertilizer  and  gave  his 
note  for  it.  When  it  became  due,  he  said  the  fertilizer  was  not  good  and 
had  injured  his  land;  still  he  paid  the  note,  and  then  brought  suit  to  re- 
cover the  money  paid.  Held,  that  as  he  had  paid  the  money  with  a  full 
knowledge  of  the  facts  he  could  not  maintain  his  action. 

—  Matthews  v.  Smith,  67  N.  C.  374. 

Consideration  for  a  Gift.  —  A  familiar  illustration  of  lack  of 
consideration  is  the  case  of  a  gift.    A  mere  promise  to  give  a 


42  CONTRACTS 

present  is  void  for  want  of  consideration,  but  when  the  promise 
is  executed  by  the  deHvery  of  the  gift  the  defect  is  remedied, 
and  the  gift  cannot  be  reclaimed. 

Miss  Brewer's  father  pointed  out  a  colt  to  her  when  she  was  but  twelve 
years  old  and  said,  "This  is  your  property ;  I  give  it  to  you."  It  was  known 
by  the  family  as  her  colt,  but  the  father  kept  possession  of  it  until  he  died. 
The  daughter  brought  an  action  to  recover  the  horse.  Held,  that  it  being  a 
gift,  there  was  no  valuable  consideration.  To  make  the  agreement  valid 
there  must  have  been  either  an  actual  or  a  constructive  delivery.  There 
having  been  no  delivery,  the  title  did  not  pass  to  the  daughter. 

—  Brewer  v.  Harvey,  72  N.  C.  176. 

Newton  handed  Camp  some  money  to  put  in  the  savings  bank  for  him, 
and  when  the  books  were  brought  back  he  said,  *'I  give  you  these  bank 
books."  Camp  kept  them,  and  in  an  action  by  Newton's  administrator 
to  recover  the  books  it  was  held  thai  this  was  a  good  delivery,  sufficient 
to  constitute  a  complete  gift.  —  Camp's  Appeal,  36  Conn.  88. 

A  Promise  may  be  a  Sufficient  Consideration.  —  The  con- 
sideration must  come  from  the  promisee,  and  it  may  consist  of 
a  present  act  or  a  promise  to  be  performed  in  the  future.  In 
the  latter  case  the  promisee  is  also  a  promisor,  and  his  promise 
may  be  to  give  or  to  do  something,  to  refrain  from  doing  some- 
thing which  he  has  a  legal  right  to  do,  or  to  surrender  some 
right. 

Mrs.  Kilcome  promised  to  pay  Flanagan  a  certain  sum  if  he  would 
drop  a  lawsuit  which  he  had  commenced  against  her.  This  was  done, 
but  she  did  not  pay  it,  and  suit  was  brought  for  the  sum  promised.  It  was 
held  that  there  was  a  valuable  consideration  for  the  promise,  even  though 
it  be  shown  that  she  would  have  succeeded  if  the  suit  had  come  to  trial. 
Mrs.  Kilcome  surrendered  her  right  to  have  it  tried. 

—  Flanagan  v.  Kilcome,  58  N.  H.  443. 

An  action  was  brought  on  a  note  given  in  consideration  of  a  parent 
naming  a  child  after  the  maker  of  the  note.  The  court  held  that  this  was 
based  upon  a  sufficient  consideration.  The  parent  surrendered  his  right  to 
name  the  child.  —  Wolford  v.  Powers,  85  Ind.  294. 

Consideration  for  the  Discharge  of  a  Debt.  —  The  payment 
of  a  smaller  sum  of  money  in  satisfaction  of  a  debt  for  a  larger* 
sum  is  not  a  sufficient  consideration  for  the  discharge  of  the  en- 
tire debt,  as  it  is,  in  fact,  doing  no   more   than   the  party   is 
already  legally  bound  to  do. 

Waters  owed  Hempy  $600  which  was  several  months  past  due.  Waters 
offered  Hempy  $400  in  full  satisfaction  of  the  debt,  which  he  accepted  and 
gave  a  receipt  in  full.    The  debt  is  not  paid  and  Hempy  can  sue  Waters 


CONSIDERATION 


43 


for  the  balance  due.     Part  payment  of  a  debt  after  maturity  does  not 
cancel  it  or  bar  action  to  recover. 

If  something  else  than  money  is  taken  in  part  satisfaction  of 
the  debt,  the  rule  will  be  different. 

If  Waters  had  paid  Hempy  $400  cash  and  given  him  a  wagon 
worth  not  more  than  $50  which  Hempy  accepted  in  full  satis- 
faction of  the  debt,  the  debt  would  have  been  canceled.  The 
acceptance  of  a  chattel  of  uncertain  value  in  full  satisfaction  of 
a  debt  cancels  the  debt.  This  is  true  even  though  the  debt  is 
past  due. 

Thomas  owed  Singleton  $826.15,  and  in  full  settlement  he  gave  Single- 
ton two  notes,  one  for  $200  and  one  for  $213.07,  guaranteed  by  one  Nix. 
Held,  that,  although  payment  or  promise  to  pay  part  of  a  debt  is  not  good 
consideration  for  the  release  of  the  balance,  when  the  creditor  receives  a 
guaranty  from  a  third  person,  or  a  note  indorsed  by  a  third  person,  the 
release  will  be  good.  —  Singleton  v.  Thomas,  73  Ala.  205. 

But  if  the  amount  due  is  in  dispute,  the  promise  to  pay  any 
sum  in  settlement  of  the  disputed  claim  is  valid,  even  though 
such  sum  be  less  than  that  actually  due.  The  liquidation  of  the 
claim  constitutes  a  good  consideration. 

Croft  was  indebted  to  Howe.  The  amount  of  the  debt  was  in  dispute. 
Croft  claimed  it  was  $785  and  Howe  claimed  it  was  $875.  They  reached 
a  compromise  agreement  whereby  Croft  paid  $830.  This  compromise  was 
fairly  made  and  the  debt  was  canceled  even  though  $875  was  the  correct 
amount. 

It  has  been  held  where  part  payment  i^  made  and  accepted 
and  a  release  under  seal  is  given  for  the  whole  debt,  that  the 
debt  is  canceled. 

Call  owed  money  to  the  Union  Bank  which  he  did  not  pay.  Later  he 
paid  part  of  the  debt  and  received  from  the  bank  a  receipt  and  release 
under  seal  for  the  whole  debt.  It  was  held  that  the  release  being  under 
seal  was  good  without  full  consideration.  —  Union  Bank  v.  Call,  5  Fla.  409. 

A  promise  of  additional  compensation  to  a  party  for  carry- 
ing out  his  uncompleted  contract  is  not  enforceable,  as  the 
undertaking  of  the  promisee  to  do  what  he  is  legally  bound  to 
do  does  not  furnish  consideration  for  the  promise. 

Carhart  contracted  to  build  a  house  for  Stone  to  cost  when  completed 
$12,000.  During  the  course  of  construction  Carhart  reported  that  a  cer- 
tain kind  of  material  which  the  specifications  called  for  had  advanced  in 


44  CONTRACTS 

price  to  such  an  extent  that  he  could  not  use  it  unless  Stone  would  agree 
to  pay  $500  more  than  the  original  contract  price.  Stone  agreed  to  this 
and  Carhart  completed  the  house.  Stone  will  not  have  to  pay  the  $500 
as  Carhart  did  for  it  no  more  than  he  was  already  legally  bound  to  do. 

Five  men  were  engaged  as  a  crew  on  a  pleasure  yacht  to  make  the 
round  trip  from  Duluth  to  Buffalo.  When  the  yacht  reached  Buffalo,  one 
man  left  the  crew.  The  owner  of  the  yacht  told  the  other  four  men  that  if 
they  would  man  the  yacht  on  the  return  trip  he  would  divide  the  salary  of 
the  man  who  left  the  crew  among  them.  They  agreed.  The  owner  of  the 
yacht  is  not  bound,  as  the  men  are  doing  no  more  than  they  originally 
contracted  to  do. 

Ayres  entered  into  a  contract  to  build  a  certain  section  of  road 
for  C.  R.  I.  &  P.  R.  Co.  After  building  a  part  Ayres  informed  the 
C.  R.  I.  &  P.  R.  Co.  that  he  owed  for  supplies  and  could  not  go  on  at 
the  contract  price.  C.  R.  I.  &  P.  R.  Co.  told  him  to  go  on  and  his  actual 
expenditures  would  be  met  and  his  creditors  paid.  Held,  that  the  agree- 
ment was  without  consideration,  as  it  simply  bound  Ayres  to  do  what  he 
was  already  under  a  legal  obligation  to  do. 

—  Ayres  v.  C.  R.  I.  b'  P.  R.  Co.,  52  Iowa  478. 

Accord  and  Satisfaction.  —  This  is  the  making  and  execut- 
ing of  an  agreement  by  which  one  party  agrees  to  give  or  per- 
form, and  the  other  party  agrees  to  accept,  in  satisfaction  of  a 
claim,  something  other  or  different  from  what  he  is  entitled  to. 
It  results  in  the  settlement  of  a  claim  by  compromising  the 
amount  which  is  in  dispute,  or  by  giving  something  else  than 
that  which  was  originally  agreed  upon. 

Whitney  sued  on  four  promissory  notes.  Cook  pleaded  that  the  notes 
had  been  discharged  by  an  agreement  by  which  Whitney  agreed  to  accept 
an  interest  in  Cook's  claim  against  the  United  States  in  satisfaction  of  the 
notes.  Held,  the  agreement  constituted  an  accord  and  satisfaction  and 
was  a  good  defense  to  the  suit.  It  depended  on  the  intention  of  the 
parties  whether  the  agreement  or  its  performance  was  to  constitute  full 
satisfaction.  —  Whitney  v.  Cook,  53  Miss.  551. 

Settlement  to  Avoid  Litigation.  —  A  settlement  to  avoid  liti- 
gation, where  the  party  forbears  to  sue  or  consents  to  drop  a 
pending  suit,  is  a  valuable  consideration,  and  the  promise  made 
for  this  consideration  can  be  enforced. 

Parker  had  been  in  the  habit  of  going  into  Enslow's  store  and  filling 
his  pipe  from  tobacco  left  on  the  counter  for  the  use  of  the  public.  Ens- 
low,  for  a  joke,  mixed  powder  with  the  tobacco,  and  when  Parker  lit  it, 
an  explosion  followed  and  injured  his  eyesight.  Parker  threatened,  and  was 
intending  to  sue  Enslow.  As  a  compromise  and  settlement  of  this  cause 
of  action,  Enslow  gave  Parker  a  promissory  note,  upon  which  he  sued.  The 
court  held  that  as  the  note  was  given  in  settlement  of  a  threatened  suit, 


CONSIDERATION  45 

if  the  payee  supposed  or  believed  that  he  had  a  cause  of  action  and  the  note 
was  given  and  accepted  in  good  faith  as  a  compromise,  it  was  supported 
by  a  sufficiient  consideration  and  could  be  enforced. 

—  Parker  v.  Enslow,  102  111.  272. 

Compromise  with  Creditors.  —  If  the  creditors  of  a  party 
agree  with  each  other  and  with  the  debtor  to  accept  a  part  of 
what  he  owes  each  of  them  in  discharge  of  the  whole  debt,  the 
forbearance  of  each  one  is  the  consideration  to  the  others,  who 
might  otherwise  lose  the  whole.  A  compromise  with  all  the 
creditors  is  therefore  held  to  be  for  a  valuable  consideration, 
and  such  an  agreement  can  be  enforced. 

Jones  &  Co.,  an  insolvent  firm,  entered  into  a  written  agreement  with 
their  creditors  whereby  the  creditors  were  to  accept  twenty-five  cents  on 
the  dollar  in  payment  of  their  several  claims  and  give  receipts  in  full,  pro- 
vided that  all  of  the  creditors  assented  to  the  agreement.  Held,  that  this 
was  a  valid  agreement,  and  that  the  firm  by  complying  therewith  was 
discharged  from  the  balance  of  the  indebtedness. 

—  Pierce  v.  Jones,  8  S.  C.  273. 

Consideration  for  Extension  of  Time.  —  But  a  promise  to  ex- 
tend the  time  of  payment  of  a  debt  already  due  is  void  for  want 
of  consideration  unless  the  debtor  makes  some  concession;  as, 
giving  some  security,  paying  interest  in  advance,  or  doing  some- 
thing that  will  form  a  consideration  for  the  promise  to  extend 
the  time. 

It  was  held,  that  an  agreement  to  extend  the  time  of  piayment  of  a 
promissory  note  upon  the  payment  of  the  interest  in  advance  is  valid,  as 
it  is  founded  upon  a  valuable  consideration. 

—  Warner  v.  Campbell,  26  111.  282. 

Moral  Obligations.  —  A  distinction  is  sometimes  made  be- 
tween "  good  "  consideration  and  "  valuable  "  consideration.  In 
defining  these  terms,  Bla-ckstone  says,  "  A  good  consideration  is 
such  as  that  of  blood,  or  of  natural  love  and  affection,  when  a 
man  grants  an  estate  to  a  near  relative,  being  founded  on 
motives  of  generosity,  prudence,  and  natural  duty.  A  valuable 
consideration  is  such  as  money,  marriage,  or  the  like,  which  the 
law  esteems  an  equivalent  given  for  the  grant,  and  is  therefore 
founded  on  motives  of  justice." 

Accordingly  it  was  held  by  some  old  authorities  that  a  moral 
obligation  was  a  sufficient  consideration  to  make  a  promise 
valid. 


46  CONTRACTS 

But  the  courts  are  now  practically  united  on  the  point  that 
neither  a  moral  obligation  nor  a  "  good  "  consideration  is  suffi- 
cient to  make  a  promise  valid  and  enforceable  at  law. 

A  father  promised  his  son  that  he  would  give  him  twenty  shares  of 
bank  stock  when  he  became  of  age.  As  this  promise  is  supported  by  **  good  " 
consideration,  which  in  reality  is  no  consideration,  it  is  not  binding.  The 
father  is  morally  bound  to  fulfill  his  promise,  but  he  is  not  legally  bound. 
"Good"  consideration  will  not  support  an  executory  contract,  but  it  will 
support  an  executed  contract. 

Consideration  for  Subscriptions.  —  Some  courts  hold  that 
there  is  no  consideration  for  subscriptions  to  a  fund  for  a  special 
purpose  unless  the  purpose  is  carried  out.  Others  hold  that  one 
subscription  is  consideration  for  another  and  that  the  promises 
mutually  support  each  other.  Still  other  courts  hold  that  if 
the  organization  accepting  the  subscription  agrees  to  carry 
out  the  purpose,  this  promise  on  their  part  is  consideration  for 
the  subscriptions,  and  the  subscribers  are  bound.  In  reality 
there  is  no  consideration  for  a  voluntary  subscription,  but  the 
court  rulings  are  justified  by  the  conditions  surrounding  such 
cases. 

A  fund  of  $100,000  is  raised  by  popular  subscription  for  a  new  Y.  M.  C.  A. 
building.  Is  Mr.  Blank,  who  subscribed  $1000,  legally  bound  by  his  sub- 
scription? According  to  the  first  ruling,  if  the  Y.  M.  C.  A.  ofhcials  act 
upon  the  subscription  and  start  the  building,  he  is  bound.  According  to 
the  second  ruHng,  he  is  bound  with  the  other  subscribers,  as  one  subscrip- 
tion is  consideration  for  another,  and  if  one  subscriber  pays,  all  others  are 
legally  bound.  According  to  the  third  ruling,  if  the  Y.  M.  C.  A.  officials 
accept  the  subscriptions  and  agree  to  erect  the  building,  all  subscribers 
are  legally  bound. 

Contracts  Entered  into  over  the  Telephone.  —  In  these  days 
a  great  deal  of  business  is  transacted  by  means  of  the  telephone. 
When  a  contract  is  entered  into  in  this  way  a  question  may 
arise  as  to  the  identity  of  the  contracting  parties,  and  in  case 
this  identity  cannot  be  established  to  the  satisfaction  of  the 
court  or  jury,  the  contract  may  be  declared  void.  For  this 
reason  it  is  best  to  require  the  confirmation  in  writing  of  all 
contracts  entered  into  over  the  telephone. 

Brown  sent  to  McGuire  a  carload  of  coal  which  he  claimed  McGuire 
had  ordered  by  telephone.  McGuire  refused  to  accept  or  pay  for  the 
coal.  Unless  Brown  could  prove  that  McGuire  had  ordered  the  coal  he 
could  not  enforce  the  contract. 


CONSIDERATION  47 

QUESTIONS 

• 

1.  What  is  consideration  in  a  contract? 

2.  Is  consideration  in  a  contract  necessary?     Explain. 

3.  How  does  the  seal  affect  a  contract  in  regard  to  consideration? 

4.  Is  it  necessary  that  the  consideration  have  value?     Explain. 

5.  What  may  be  consideration  in  a  contract? 

6.  Does  the  law  with  reference  to  consideration  apply  to  executed 
contracts  the  same  as  to  executory  contracts?     Explain. 

7.  How  does  illegal  consideration  affect  a  contract?     Give  example. 

8.  Can  a  thing  that  is  impossible  be  the  consideration  in  a  contract? 

9.  Explain  the  meaning  of  "  consideration  must  be  present  or  future." 

10.  Under  what  circumstances,  if  any,  can  a  promise  to  pay  for  services 
performed  in  the  past  be  enforced? 

11.  Is  a  mere  promise  to  make  a  gift  enforceable?     Explain. 

12.  May  a  promise  be  a  sufficient  consideration?     Give  an  example. 

13.  What  is  the  usual  way  of  discharging  a  debt? 

14.  In  case  of  part  payment  of  a  debt,  if  a  receipt  is  given  in  full,  is 
the  debt  discharged? 

15.  Under  what  circumstances  will  part  payment  discharge  a  debt? 

16.  Mention  a  case  where  the  court  will  look  into  the  adequacy  of  the 
consideration. 

17.  Give  an  example  of  inadequate  consideration. 

18.  Will  a  compromise  of  a  disputed  claim  constitute  a  good  con- 
sideration?    Explain. 

19.  How  will  a  release  under  seal  in  case  of  part  payment  affect  the 
debt? 

20.  Explain  "  accord  and  satisfaction." 

21.  Is  a  promise  to  forbear  bringing  suit  sufficient  consideration? 

22.  Is  a  compromise  with  creditors  a  sufficient  consideration? 

23.  Discuss  a  promise  to  extend  the  time  of  payment  of  a  debt. 

24.  Distinguish  between  a  legal  obligation  and  a  moral  obligation. 

25.  Is  a  person  who  subscribes  to  a  fund  bound  by  his  subscription? 

26.  Why 'should  contracts  entered  into  by  telephone  be  confirmed? 

27.  Name  the  elements  in  the  following: 

(i)  Kent  offered  to  employ  Houston  as  a  yard  foreman  for  one  year 
at  $125  per  month.     Houston  accepted  the  offer  and  started  to  work. 

(2)  Myers  rented  a  store  building  on  Main  Street,  from  Jackson,  for 
one  year  for  $1200  and  paid  one  month's  rent  in  advance. 

(3)  Harris  entered  the  University  of  Minnesota  and  paid  one  year's 
tuition',  $150,  in  advance. 

(4)  Whitmore  &  Co.  engage  space  in  Lincoln's  garage  for  three 
trucks  at  $15  each  per  month. 

(5)  Morran  and  Wilkins  enter  into  a  written  agreement  whereby 
Wilkins  is  to  erect  a  house  for  Morran,  according  to  certain  plans  and  speci- 
fications, for  the  sum  of  $12,000. 


48  CONTRACTS 

7.  OPERATION  OF  CONTRACTS 

Parties  Acquiring  Rights  under  Contracts.  —  We  have  now 
considered  every  element  necessary  for  a  valid  and  binding 
contract,  and  the  question  arises  as  to  the  extent  and  limitation 
of  the  rights  conferred  and  of  the  obligations  incurred. 

As  a  general  principle  only  the  parties  to  a  contract  acquire 

any  rights  under  it.    It  is  clear  that  it  cannot  impose  liabilities 

upon  any  one  not  a  party  to  it.    A  man  cannot  voluntarily  and 

without  being  asked  to  do  so  pay  another  man's  debts  and  thus 

establish  himself  as  a  creditor. 

Jameson  paid  a  debt  of  $600  for  a  friend  of  his  without  being  asked 
to  do  so.    If  the  friend  does  not  see  fit  to  pay  Jameson  he  cannot  recover. 

Rights  of  Third  Parties.  —  In  nearly  all  of  the  states  (Massa- 
chusetts and  Michigan  excepted)  if  a  contract  is  made  by  E 
with  F  for  the  benefit  of  G,  G  may  recover  upon  it,  although 
the  consideration  came  from  E  and  F's  promise  was  made  to  E. 

Empy  lends  $100  to  Foster  and  Foster  promises  Empy  that  he  will 
repay  it  to  Grant.  Grant  can  maintain  an  action  against  Foster  upon  this 
promise  made  for  his  benefit. 

The  contrary  ruling  is  illustrated  by  the  following  case: 

A  father  agreed  with  his  son  that  he  would  revoke  a  provision  in  his 
will  in  favor  of  his  daughter  and  devise  the  same  property  to  the  son  in 
consideration  of  the  son's  paying  the  daughter  $10  a  month  as  long  as  she 
might  live.  The  daughter  was  not  a  party  to  the  agreement.  Held,  that 
she  could  not  enforce  it.  —  Linneman  v.  Moross,  98  Mich.  178. 

The  New  York  courts  in  the  celebrated  case  of  Lawrence  v.  Fox,  20 
N.  Y.  268,  held  that  the  third  person,  for  whose  benefit  a  promise  was  made, 
might  maintain  an  action  upon  the  promise,  provided  that  he  was  the  person 
directly  intended  to  be  benefited,  and  provided  that  the  promisee  was  at  the 
time  under  an  existing  obligation  to  him,  which  the  promisee  sought  to  dis- 
charge by  giving  him  the  benefit  of  the  promisor's  promise.  The  facts  in 
this  case  were  that  one  Holly,  at  the  request  of  Fox,  loaned  him  $300.  Holly 
stated  at  the  time  that  he  owed  that  sum  to  Lawrence  and  had  agreed  to  pay 
it  to  him  the  next  day.  Fox,  in  consideration  of  the  loan,  promised  Holly 
that  he  would  pay  the  sum  to  Lawrence  on  the  next  day.  Lawrence  sued 
Fox  on  this  promise  and  the  court  held  that  he  could  recover  on  the  promise, 
although  he  was  not  a  party  to  it. 

The  rule  as  applied  in  New  York  state  has  been  very  largely 
adopted  throughout  the  United  States. 

Harrison  purchased  Lambert's  interest  in  the  firm  of  Lamb'^rt  and 
Hoyt,  and  agreed  with  Lambert  to  pay  his  obligations  to  the  partnership 


OPERATION  OF  CONTRACTS  49 

creditors.    The  creditors  of  the  old  firm  of  Lambert  and  Hoyt  may  sue 
Harrison  on  this  promise  made  for  their  benefit 

X  sold  certain  real  property  to  Walker,  the  property  being  mortgaged 
to  Dean.  As  a  part  of  the  purchase  price  Walker  agreed  with  X  to  assume 
the  mortgage  and  pay  the  amount  named  therein  to  Dean.  Held,  that 
Dean,  who  was  not  a  party  to  this  agreement,  could  claim  the  benefits 
thereof  and  maintain  an  action  to  recover  the  amount  of  the  mortgage 
from  Walker.  —  Dean  v.  Walker,  107  111.  540. 

Joint  and  Several  Liability.  —  When  two  or  more  persons  are 
liable  in  a  contract,  their  liability  may  be  joint  or  several. 

1.  Persons  jointly  liable  must  all  be  sued  together,  a  dis- 
charge to  one  discharges  all,  and  if  one  dies  the  liability  rests  in 
the  survivors. 

2.  If  the  persons  are  severally  liable,  each  for  only  a  part  of 
the  contract,  they  must  be  sued  individually,  and  a  discharge  to 
one  does  not  discharge  the  others.    There  is  no  survivorship. 

Assignment  of  Rights  and  Liabilities.  —  Having  now  deter- 
mined upon  whom  the  rights  and  liabilities  fall,  we  must  as- 
certain how  and  when  other  persons  may  take  their  places  and 
succeed  to  their  rights,  if  at  all.  It  is  well  established  that  the 
promisor  cannot  assign  his  liabilities  under  the  contract;  that 
is,  the  promisee  cannot  be  compelled  to  accept  performance 
from  any  but  the  promisor.  This  is  only  just,  for  if  A  contracts 
with  B  to  have  him  do  a  certain  thing  for  him,  A  is  entitled  to 
know  with  whom  he  is  dealing,  as  he  may  have  taken  into  con- 
sideration B's  particular  adaptability  to  the  work. 

This  rule  is  qualified  in  the  case  of  B  undertaking  to  do  cer- 
tain work  for  A  in  which  no  particular  knowledge  or  skill  is 
required.  He  can  then  have  the  work  done  by  another,  but 
still  B  is  responsible  for  the  work  being  well  done. 

H  agreed  to  sell  to  Groezinger  all  the  grapes  he  might  raise  in  a  certain 
vineyard  during  a  period  of  ten  years,  and  Groezinger  agreed  to  pay  there- 
for $25  per  ton.  At  the  end  of  five  years  H  sold  the  vineyard  and  assigned 
the  contract  to  LaRue.  Groezinger  refused  to  accept  grapes  from  LaRue, 
saying  he  had  no  contract  with  him.  Held,  that  the  contract  could  be 
assigned,  as  it  was  not  for  services  of  a  personal  nature. 

—  LaRue  v.  Groezinger,  84  Calif.  281. 

The  case  of  Boston  Ice  Co  v.  Potter  (page  27)  is  not  in 
conflict  with  this  rule,  as  the  courts  hold  that  the  promisor  cannot 
assign  his  Hability  unless  the  -agreement  contemplates  that  some 


so  CONTRACTS 

one  else  is  to  do  the  work  or  aid  in  it.  This  is  true  in  the  case  of  a 
contractor  agreeing  to  build  a  house,  as  it  is  plainly  within  the 
contemplation  of  the  parties  that  he  will  employ  men  to  do  part  or 
all  of  the  work. 

Deverman,  a  noted  artist,  agreed  to  paint  a  picture  of  a  certain  land- 
scape for  Morwitz.  Deverman,  not  being  able  to  paint  the  picture,  at- 
tempted to  deliver  to  Morwitz  on  the  contract  a  picture  painted  by  an 
assistant  and  student  in  Deverman's  studio.  As  this  contract  calls  for 
services  of  a  personal  nature,  Morwitz  may  refuse  to  accept  a  picture 
painted  by  any  one  other  than  Deverman. 

Gamzon  contracted  to  build  an  apartment  house  for  LeRoy.  The 
building  of  an  apartment  house  requires  the  services  of  many  different 
artisans,  such  as  carpenters,  masons,  and  plumbers,  and  it  is  clearly  within 
the  contemplation  of  the  parties  that  others  are  to  assist  in  the  construc- 
tion of  this  apartment  house  and  the  subletting  or  assigning  of  parts  of 
the  work  would  not  affect  the  contract. 

As  to  rights  and  benefits  under  a  contract,  the  general  rule 
is  that  a  contract  involving  only  money  or  property  can  be 
assigned,  but  a  contract  involving  personal  service  or  some  par- 
ticular characteristic  of  a  party  cannot  be  assigned.  In  other 
words  a  contract  to  pay  money  may  be  assigned,  and  also  a  con- 
tract to  deliver  goods,  but  a  contract  of  employment  cannot  be 
assigned.  An  assignment  is  effective  against  the  other  party  to 
the  contract  only  after  he  has  received  notice  of  the  assignment. 

Adams  owed  Mozier  $500  for  goods  sold  and  delivered.  On  May  i 
Adams  paid  Mozier  $100  on  account.  On  May  15  Mozier  assigned  his 
claim  to  Sheerman.  On  June  i  Adams  paid  Mozier  $100  more  on  account. 
On  June  15  Sheerman  gave  Adams  notice  of  the  assignment.  Adams  will 
be  required  to  pay  only  $300  to  Sheerman,  as  both  payments  were  made 
before  he  received  notice  of  the  assignment. 

An  assignment  conveys  to  the  assignee  no  better  title  than 
his  assignor  had.  In  other  words,  the  assignee  is  subject  to  all 
the  defenses  that  might  be  brought  against  the  assignor  up 
to  the  time  notice  of  the  assignment  has  been  given.  This  rule, 
however,  does  not  apply  to  negotiable  paper,  which  is  treated  in  a 
later  chapter. 

Rights  under  an  assigned  contract,  if  assignable,  can  be 
enforced  by  the  assignee  in  his  own  name  if  the  party  Hable  has 
been  given  notice  of  the  assignment.  In  the  Boston  Ice  Co.  case 
(page  27),  Potter  had  no  notice  of  the  assignment  by  the  Citizens 
Ice  Co.  to  the  Boston  Ice  Co. 


OPERATION  OF  CONTRACTS  51 

Aside  from  the  assignment  of  the  rights  and  liabilities  under  a 
contract  by  the  voluntary  acts  of  the  parties,  they  may  also  be 
transferred  by  operation  of  law. 

By  the  death  of  a  person  all  of  his  rights  under  his  con- 
tracts pass  to  his  executor  if  he  leaves  a  will,  or  to  his  adminis- 
trator if  he  dies  without  one.  This  is  not  the  rule  if  the  contract 
depends  upon  his  performing  some  acts  of  personal  service  or 
skill.     In  such  cases  the  contract  dies  with  the  party. 

Lacy  contracted  with  M  to  work  upon  his  farm  as  an  ordinary  farm 
laborer  for  one  year  from  March  i.  In  July  M  died.  Held,  that  his  death 
terminated  the  contract. — Lacy  v.  Getman,  119  N.  Y.  109. 

By  the  bankruptcy  of  a  party  all  of  his  property,  including  his 
rights  under  his  contracts,  passes  to  the  trustee.  This  is  ex- 
plained fully  in  a  later  chapter  on  Bankruptcy. 

Novation.  —  This  is  the  substitution  of  a  new  contract  for 
an  existing  contract,  either  by  substituting  different  parties  or 
different  terms,  and  must  be  in  all  respects  a  valid  contract. 

Adams  contracts  with  Johnson  for  the  purchase  of  his  automobile. 
Adams  decides  that  he  does  not  want  the  car,  so  he  enters  into  an  agree- 
ment with  all  concerned  whereby  Brown  is  to  take  his  place  as  the  pur- 
chaser.    This  is  a  novation;   Brown  has  been  substituted  for  Adams. 

Cummings  had  a  contract  for  the  sale  of  500  tons  of  coal  to  Sherman 
for  $6  a  ton.  The  parties  made  a  new  agreement,  canceling  the  old  one, 
by  which  Cummings  agreed  to  sell  and  Sherman  to  buy  1000  tons  of  coal 
for  $5.50  a  ton. 

QUESTIONS 

1.  Who  acquires  rights  under  a  contract? 

2.  Can  a  man  voluntarily  pay  the  debt  of  another  and  establish  him- 
self as  a  creditor? 

3.  Can  a  third  party  acquire  rights  under  a  contract?  Give  an  ex- 
ample, f 

4.  Can  the  creditors  of  an  old  firm  hold  liable  a  new  member  of 
the  firm  who  agreed  at  the  time  he  entered  to  assume  responsibihty  for 
the  debts  already  contracted? 

5.  Define  joint  liability,  and  several  liability,  and  give  an  example  of 
each. 

6.  Can  a  promisor  assign  his  liabilities  under  a  contract? 

7.  Can  a  contract  for  personal  services  be  assigned?  Explain  fully  and 
give  examples. 

8.  What  rights  under  a  contract  are  assignable? 

9.  Does  the  assignee  get  any  better  title  than  the  assignor  had? 
Explain, 


52  CONTRACTS 

10.  Can  an  assignee  enforce  rights  in  his  own  name? 

11.  Is  notice  of  an  assignment  necessary?     Explain. 

12.  Give  an  example  of  an  assignment  by  operation  of  law. 

13.  What  happens  to  rights  under  a  contract  fn  case  of  death  of  a 
contracting  party? 

14.  What  is  a  novation?     Give  an  example. 

8.   STATUTE  OF  FRAUDS 

Outline.  —  In  the  year  1676  a  law  was  passed  in  England, 
entitled  "  An  act  for  the  prevention  of  frauds  and  perjuries." 
This  statute  required  that  written  evidence  should  be  supplied 
in  proving  certain  contracts. 

The  statute  commonly  called  "  the  fourth  section  of  the 
Statute  of  Frauds"  which  has  been  reenacted  by  nearly  all  of 
the  states,  provides  in  substance  that  in  order  to  be  enforceable 
the  following  contracts,  or  some  memorandum  of  them,  shall 
be  in  writing  and  signed  by  the  party  against  whom  it  is  sought 
to  enforce  the  contract  or  by  his  authorized  agent: 

1.  The  promise  of  an  executor  or  administrator  to  pay 
from  his  own  funds  or  estate  the  debts  of  the  estate  he  is  ad- 
ministering. 

Johnson,  the  administrator  of  an  estate,  promised  the  undertaker  that 
if  the  estate  was  not  sufficient  to  meet  all  expenses  he  would  assume 
responsibility  for  the  funeral  expenses  and  pay  them  from  his  own  funds. 
As  this  promise  was  not  in  writing  it  could  not  be  enforced. 

2.  The  promise  of  any  one  to  answer  for  the  debt  .or  de- 
fault of  another^ that  is,  to  guarantee  that  another  will  pay 
his  debts  or  fulfill  his  legal  obligations. 

Morton  was  asked  to  guarantee  payment  of  a  debt  contracted  by  Clark. 
He  said  that  he  would  pay  the  debt  if  Clark  failed  to  do  so.  In  order  to 
bind  Morton  on  this  guaranty  it  would  have  to  be  in  writing,  and  it  would 
have  to  be  given  before  or  at  the  same  time  the  debt  was  contracted  or 
there  would  have  to  be  some  new  consideration  for  the  guaranty. 

3.  The  promise,  as  distinguished  from  a  mutual  promise  to 
marry,  to  perform  any  special  act,  as  to  transfer  property  rights, 
in  consideration  of  marriage,  in  a  case  where  the  marriage  is  the 
consideration  for  such  promise. 

Whalan  promised  Miss  Green  that  he  would  give  her  500  shares  of 
U.  C.  R.  R.  stock  if  she  would  marry  him.  She  consented.  Unless  this 
agreement  was  in  writing,  signed  by  Whalan,  she  could  not  claim  the  stock. 


STATUTE  OF  FRAUDS  53 

4.  Any  contract  for  the  sale  of  land  or  any  interest  in  or 

concerning  lands. 

Graves  contracted  verbally  with  Jameson  for  the  purchase  of  a  certain 
building  lot.  They  were  to  meet  Jameson's  attorney  ten  days  later  for  the 
purpose  of  executing  papers  necessary  to  transfer  title.  In  the  meantime 
Jameson  received  a  better  offer  and  sold  to  another  party.  As  this  contract 
was  not  in  writing  Graves  had  no  right  of  action. 

By  the  common  law  a  lease  of  land  was  not  required  to  be 
in  writing,  but  this  rule  was  changed  in  England  and  the  United 
States  by  the  adoption  of  the  Statute  of  Frauds.  By  special 
statute  in  some  states  a  lease  for  one  year  or  less  need  not  be 
in  writing,  even  though  it  is  to  commence  at  a  future  date. 

(For  other  contracts  of  sale,  seepage  94.) 

5.  Any  contract,  which  by  its  terms  is  not  to  be  performed 
within  one  year  from  the  time  of  the  making  thereof;  but  if 
performance  within  one  year  is  possible,  it  does  not  have  to  be 
in  writing. 

Some  time  prior  to  November,  Hillhouse  and  Jennings  made  an  oral 
agreement  by  which  Hillhouse  was  to  work  for  Jennings  for  one  year  from 
November  21.  It  was  held  that  the  contract  was  within  the  Statute  of 
Frauds,  and  not  being  in  writing  it  was  unenforceable. 

It  must  be  remembered  that  this  special  requirement  is  in 
addition  to  all  other  requirements.  In  these  contracts,  as  in 
all  others,  there  must  be  competent  parties,  agreement,  legal 
subject  matter,  and  consideration.  Most  contracts  may  be 
proved  by  oral  evidence;  these  contracts  may  be  proved  only 
by  written  evidence. 

Object.  —  The  object  of  this  statute  was  to  lessen  the  perjury 
in  the  testimony  of  witnesses,  especially  in  the  important  cases 
included  therein,  and  it  therefore  required  that  these  contracts 
be  evidenced  in  writing.  In  nearly  all  of  the  states  of  the  Union 
this  statute  has  been  reenacted  in  somewhat  the  same  form, 
although  the  language  of  the  different  statutes  varies.  This 
statute  does  not  render  any  oral  contracts  void,  but  says  that  no 
action  shall  be  brought  on  them  in  the  cases  mentioned  above.  It 
takes  away  the  remedy.  When  action  is  brought  in  court  upon 
contracts  of  the  kinds  mentioned,  it  is  necessary  to  show  the 
written  agreement.  The  oral  agreement  is  valid,  and  after  it  is 
made,  a  sufficient  writing  may  be  given. 


54  CONTRACTS 

A  verbal  contract  was  made  which  belonged  to  the  class  required  by 
the  Statute  of  Frauds  to  be  in  writing.  It  was  broken,  and  the  parties 
afterwards  entered  into  a  written  agreement  containing  the  terms  of  the 
oral  contract.  After  the  writing  was  signed  an  action  was  brought  for  a 
breach  of  the  contract  which  occurred  before  the  written  agreement  was 
executed.  Held,  that  the  contract  was  sufficient  to  satisfy  the  statute. 
The  writing  was  not  the  contract  itself,  but  the  evidence  necessary  to 
prove  it.  —  Bird  v.  Munroe,  66  Maine  337. 

The  Statute  of  Frauds  is  a  defense,  solely,  and  the  party  avail- 
ing himself  of  it  must  set  it  up,  otherwise  it  is  waived. 

When  Memorandum  is  Sufficient.  —  The  writing  need  not  be 
a  formal  contract.  A  memorandum  or  note  containing  the 
terms  of  the  agreement,  if  signed  by  the  party  to  be  charged 
or  his  authorized  agent,  i^  suihcient. 

Action  was  brought  to  compel  Brown  to  perform  his  part  of  the  fol- 
lowing contract  and  to  convey  the  land  to  Hurley. 
$50  *      "Lynn,  April  14,  1866. 

"Received  of  John  and  Michael  Hurley  the  sum  of  fifty  dollars  in  part 
pa5TTient  of  a  house  and  lot  of  land  situated  on  Amity  Street,  Lynn,  Mass. 
The  full  amount  is  $1700.  This  bargain  is  to  be  closed  within  ten  days 
of  the  date  hereof."  This  was  signed  by  Brown.  Brown  claimed  that  the 
writing  was  not  sufficient,  as  there  were  several  houses  and  lots  on  the 
street.  It  was  shown  that  defendant  owned  no  other  house  and  lot  on  the 
same  street.  The  court  held  that  the  writing  was  sufficient,  and  that  evi- 
dence could  be  given  as  to  the  particular  house  meant. 

—  Hurley  v.  Brown,  98  Mass.  545. 

The  memorandum  or  note  required  to  be  in  writing  need 
merely  contain  the  agreement  and  may  consist  of  several  writ- 
ings or  a  number  of  letters  and  memorandums. 

Promise  of  an  Executor  or  Administrator. —  The  promise  of 

an  executor  or  administrator  to  answer  damages  out  of  his  own 

estate,  that  is,  to  render  him  personally  liable  for  the  debts  of 

the  deceased,  must  be  in  writing.     But  the  writing  does  not 

import  any  consideration,  and  there  must  be  a  consideration  to 

this  as  to  any  contract. 

Shepherd,  who  owed  Smithwick  for  board,  died.  Shepherd 's  adminis- 
trator, in  a  conversation  with  Smithwick,  stated  that  "he  would  see  it  paid" 
or,  "it  should  be  paid."  Held,  that  the  promise  was  not  enforceable  be- 
cause it  was  not  in  writing.  —  Smithwick  v.  Shepherd,  4  Jones  (N.  C.)  196. 

Promise  to  Answer  for  the  Debts  of  Another.  —  In  the  case 
of  a  promise  to  answer  for  the  debt,  default,  or  miscarriage  of 
another,  there  must  be  three  parties:    the  debtor,  the  creditor, 


STATUTE  OF  FRAUDS  55 

and  the  person  who  guarantees  the  debtor's  account.  To  bring 
the  case  under  the  rule  requiring  a  writing  there  must  not  be 
an  absolute  promise  to  pay,  but  a  promise  to  pay  if  the  other 
defaults. 

To  illustrate,  A  goes  to  a  grocery  with  B  and  says,  "  Give 
B  a  bill  of  groceries,  and  if  he  fails  to  pay  for  them,  I  will." 
Such  a  promise  is  under  the  statute  and  must  be  in  writing. 
But  if  A  says,  '^  Give  B  the  bill  of  goods  and  I  will  pay  for 
them,"  or,  "  I  will  see  that  you  are  paid,"  this  is  an  independent 
promise,  making  A  the  principal  debtor,  and  is  not  within  the 
statute. 

Boston,  a  physician,  brought  suit  to  recover  for  services  rendered  Farr's 
stepson.  Farr  said  to  Boston,  "Go  and  get  a  surgeon  and  do  all  you  can 
for  the  boy;  I  will  see  that  you  get  your  pay."  Held,  the  jury  were  justi- 
fied in  finding  that  it  was  an  original  promise  on  the  part  of  defendant  by 
which  he  charged  himself  with  the  bill,  and  did  not  come  within  the 
statute.  —  Boston  v.  Farr,  148  Pa.  State  220.  • 

The  test  seems  to  be  whether  the  party  for  whose  debt  the 
promise  is  made  continues  to  be  liable;  if  so,  the  promise  is 
within  the  statutes. 

Agreements  in  Consideration  of  Marriage.  —  The  agreement 
here  meant  is  not  the  promise  to  marry,  but  the  promise  to 
settle  property  or  to  make  a  payment  of  money  in  consideration 
of,  or  conditioned  upon,  a  marriage. 

It  was  held  that  a  verbal  agreement  made  by  the  woman  before  mar- 
riage, whereby  she  released  and  renounced  all  interest  in  her  proposed 
husband's  estate  after  his  death,  was  void  under  the  Statute  of  Frauds. 

—  McAnnuUy  v.  McAnnuUy,  120  111.  26. 

Contracts  for  the  Sale  of  Lands  or  Any  Interest  in  or  Con- 
cerning Them.  —  This  section  does  not  apply  to  the  deed  of 
conveyance  of  land,  as  that  must  be  written  and  sealed  without 
statutory  requirement.  But  the  statute  here  refers  to  any 
agreement  to  buy  or  sell  land,  or  to  any  interest  in  or  concern- 
ing lands,  as  a  grant  of  a  right  of  way  over  one's  land,  which 
is  an  interest  concerning  the  realty  and  within  the  statute. 

Agreements  Not  to  be  Performed  within  the  Space  of  One 
Year.  —  The  mere  fact  that  the  contract  may  or  naay  not  be 
completed  within  one  year  is  not  sufficient  to  bring  it  within 
the  statute.     It  must  be  the  plain  intent  and  purpose  of  the 


56  CONTRACTS 

contract  that  it  is  not  to  be  performed  within  that  time,  to 
bring  it  within  the  statute.  If  its  performance  depends  upon  a 
contingency  that  may  or  may  not  happen  within  the  year,  no 
writing  is  necessary. 

It  was  held  that  a  contract  of  partnership  to  continue  for  three  years 
was  void  under  the  Statute  of  Frauds  unless  in  writing. 

—  Wahl  V.  Barnum,  ii6  N.  Y.  87. 

An  agreement  to  support  a  person  during  his  lifetime  is  not 
within  the  statute,  as  he  may  ^ie  within  the  year. 

Z,  a  stepfather,  gave  D,  his  stepson,  the  use  of  his  farm  during  Z's 
lifetime  in  consideration  of  D's  supporting  Z  and  his  wife  during  their 
lives.    Held,  that  such  an  agreement  is  not  within  the  statute. 

—  McCormick  v.  Drummett,  9  Nebr.  384. 

But  a  contract  for  a  year's  service  to  be  entered  upon  in  the 
future,  even  the  next  day,  must  be  in  writing  under  the  statute. 

About  the  middle  of  March  Oddy  and  James  entered  into  a  verbal 
agreement  by  which  James  employed  Oddy  to  superintend  his  cement 
works  for  one  year  from  April  i  next.  Oddy  worked  until  August  3,  when 
James  discharged  him.  Oddy  sued,  and  James  set  up  that  the  agreement 
was  void  under  the  Statute  of  Frauds.  Held,  for  James.  The  contract 
was  not  to  be  performed  within  one  year,  so  must  be  in  writing. 

—  Oddy  V.  James,  48  N.  Y.  685. 

QUESTIONS 

1.  What  is  the  Statute  of  Frauds? 

2.  What  contracts  must  be  in  writing  under  the  Statute  of  Frauds? 

3.  Is  any  formal  written  instrument  necessary?    Explain. 

4.  How  are  most  contracts  proved? 

5.  How  must  contracts  within  the  Statute  of  Frauds  be  proved? 

6.  What  is  the  object  of  the  Statute  of  Frauds? 

7.  How  general  has  been  its  adoption? 

8.  Explain  the  following:  "  The  Statute  of  Frauds  is  a  defense, 
solely,  and  the  party  availing  himself  of  it  must  set  it  up,  otherwise  it  is 
waived." 

9.  Give  an  example  of  an  oral  promise  to  answer  for  the  debt  of 
another  that  would  not  be  enforceable. 

10.  Is  an  oral  contract  to  sell  land  enforceable? 

11.  Merritt  agreed  to  pay  Love  $20  per  month  to  care  for  a  horse 
until  he  died.  In  case  the  horse  lives  three  years  would  this  contract  have 
to  be  in  writing  to  be  enforceable?  , 

12.  Lyng  agreed  to  work  for  Booth  for  one  year  and  to  begin  work 
on  the  first  of  the  following  month.      Must  this  contract  be  in  writing? 


DISCHARGE  OF  CONTRACT  57 

9.  DISCHARGE  OF  CONTRACT 

Discharge  by  Agreement.  —  As  the  contract  is  created  by 
the  agreement  of  the  parties,  so  the  parties  may,  if  they  choose, 
terminate  and  discharge  it  in  a  Hke  manner.  If  the  contract 
is  executory,  each  party  may  waive  his  rights  under  it,  and  the 
waiver  of  the  rights  of  one  is  the  consideration  for  the  waiver  of 
the  rights  of  the  other.  It  is  virtually  a  new  contract,  the  sub- 
ject matter  of  which  is  the  waiver  of  the  old  contract,  and  all  of 
the  elements  of  a  contract  are  necessary  to  constitute  a  valid 
waiver.  If  one  party  has  performed  his  part  of  the  contract, 
there  must  be  some  consideration  for  his  release  of  the  other 
party. 

Andrews  offered  Hoff  ten  cords  of  wood  and  Hoff  agreed  to  work  for 
Andrews  five  months  to  pay  for  it.  Before  anything  had  been  done  An- 
drews released  Hoff  from  his  promise  to  work  and  Hoff  released  Andrews 
from  his  promise  to  deliver  the  wood.    The  contract  was  discharged. 

Suppose  that  after  Andrews  had  delivered  the  wood  he  released  Hoff 
from  his  promise  to  work  five  months.  Hoff's  liability  would  not  be  dis- 
charged, as  there  would  be  no  consideration  for  Andrews's  release. 

A  waiver  may  be  effected  by  the  substitution  of  a  new  con- 
tract which  so  changes  the  terms  of  the  old  one  that  it  either 
expressly  or  impliedly  waives  the  old  agreement,  but  the  inten- 
tion to  discharge  the  old  contract  must  be  clear.  The  contract 
may  by  express  terms  provide  for  its  own  discharge,  as,  for 
instance,  a  stipulation  that  one  party  may  terminate  it  upon 
giving  certain  notice  or  performing  certain  conditions. 

A  policy  of  insurance  provided  that  if  the  premises  should  become 
vacant  and  remain  unoccupied  for  a  period  of  more  than  ten  days,  without 
the  assent  of  the  company  indorsed  upon  the  policy,  the  policy  should 
become  void.  The  premises  became  vacant  and  remained  so  for  over  three 
months.  They  were  then  occupied  and  thereafter  burned.  Held,  that 
by  the  terms  of  the  policy  it  was  terminated  and  discharged  by  the  vacancy, 
and  subsequent  occupation  did  not  revive  it. 

—  Moore  v.  Phcenix  Insurance  C(7.,  62  N.  H.  240. 

Discharge  by  Performance.  —  This  is  the  termination  of  the 
contract  contemplated  by  the  parties  when  it  is  made.  The 
terms  having  been  carried  out  and  the  conditions  performed, 
the  contract  is  satisfied  and  discharged.  This  of  course  requires 
performance  upon  both  sides.    If  but  one  party  has  performed, 


S8  CONTRACTS 

he  alone  is  discharged  and  not  the  contract,  for  it  remains  in 
force  until  all  of  its  provisions  are  carried  out.  If  the  contract 
is  for  the  sale  of  a  table  for  $40,  the  contract  is  discharged 
when  the  table  is  delivered  and  the  money  paid.  If  the  table 
is  delivered  but  payment  not  made,  it  is  discharged  as  to  the 
seller  but  not  as  to  the  purchaser. 

To  constitute  a  performance  the  terms  of  the  contract  must 
be  carried  out  as  to  time,  place,  and  conditions.  Although  a 
substantial  performance  is  held  good,  the  party  will  be  liable  for 
the  damages  caused  by  his  deviation  from  the  exact  terms  of  the 
contract. 

Nolan  brought  an  action  to  recover  on  a  contract  for  building  Whitney 
a  house.  The  court  found  that  he  had  endeavored  to  live  up  to  the  agree- 
ment and,  acting  in  good  faith,  had  substantially  performed  his  part.  He 
could  therefore  recover,  notwithstanding  some  slight  defects  in  the  plaster- 
ing for  which  compensation  would  be  made  to  Whitney. 

—  Nolan  v.  Whitney,  88  N.  Y.  648. 

Gillespie  Tool  Company  brought  an  action  to  recover  the  contract 
price  for  driUing  a  gas  well.  The  contract  called  for  a  certain  depth  and 
diameter.  The  tool  company  had  drilled  the  required  depth,  but  the 
diameter  of  part  of  it  was  less  than  the  contract  specified.  The  only  ex- 
cuse for  this  was  the  saving  of  time  and  expense.  Held,  that  this  was  not 
a  substantial  compliance  and  the  company  could  not  recover,  although  the 
well  answered  every  purpose  a  larger  one  would. 

—  Gillespie  Tool  Co.  v.  Wilson,  123  Pa.  State  19. 

When  the  contract  calls  for  the  payment  of  money,  the  party 
to  whom  it  is  to  be  paid  need  not  accept  a  note  or  check.  But 
if  it  is  accepted,  the  question  arises  as  to  whether  or  not  this 
discharges  the  original  contract,  or  whether  the  note  or  check  is 
to  be  regarded  as  a  conditional  payment.  If  it  is  but  a  con- 
ditional payment,  it  does  not  discharge  the  contract  until  it  is 
paid.  The  intent  of  the  parties  governs  here,  but  in  the  absence 
of  any  proof  of  intent  to  the  contrary,  the  presumption  is,  in 
most  of  the  states,  that  it  is  taken  conditionally. 

The  taking  of  a  note  for  a  preexisting  debt  was  held  to  be  no  payment 
unless  the  creditor  expressly  agreed  to  take  the  note  as  payment  and  to 
run  the  risk  of  its  being  paid.  The  giving  of  a  receipt  for  the  amount  is 
not  enough  to  establish  such  a  positive  agreement. 

—  Stone  &  Gravel  Co.  v.  Gates  Iron  Works,  124  111.  623. 

A  contract  in  which  the  performance  of  one  party  is  to  be 
satisfactory  to  the  other  gives  rise  to  a  nice  question  and  we  are 


DISCHARGE  OF  CONTRACT  59 

confronted  with  the  inquiry,  Can  the  whims  and  personal  taste 
of  the  party  for  whom  the  work  is  done  prevent  the  fulfillment 
of  the  agreement  when  the  performance  is  to  all  intents  and 
purposes  well  accomplished?  The  answer  seems  to  be  that  if  it 
is  a  matter  of  personal  taste,  as  a  contract  for  painting  a  portrait, 
or  if  it  is  a  contract  for  the  sale  of  goods  where  the  parties  can 
be  put  in  statu  quo  (i.e.  the  same  condition  in  which  they  origi- 
nally stood),  the  agreement  will  be  strictly  construed  and  the 
buyer  will  be  the  sole  judge. 

Brown  expressly  agreed  to  make  a  suit  of  clothes  for  Foster  that  would 
be  satisfactory  to  him.  The  clothes  were  made  and  delivered,  but  Foster 
declined  to  accept  "them.  Brown  proved  that  they  could  easily  be  altered 
and  made  to  fit.  But  the  court  held  that  under  the  agreement  it  was  for 
Foster  alone  to  decide  whether  or  not  he  would  accept  the  clothes.  It  was 
Brown's  fault  if  he  entered  into  a  contract  that  made  his  compensation 
dependent  upon  the  judgment  and  caprice  of  another. 

—  Brown  v.  Foster,  113  Mass.  136. 

An  artist  who  agrees  to  paint  a  "satisfactory"  portrait  cannot  re- 
cover unless  the  buyer  is  satisfied,  as  the  question  of  reasonable  satisfac- 
tion does  not  enter  into  contracts  involving  personal  taste. 

—  Pennington  v.  Rowland,  21  R.  I.  65. 

But  if  it  is  a  contract  for  work  or  labor  which  does  not  in- 
volve the  question  of  personal  taste,  as  for  machinery  or  mason 
work,  the  courts  hold  that  the  party  for  whom  the  work  is 
performed  must  be  satisfied  when  in  justice  and  reason  he  ought 
to  be  satisfied.  That  is,  if  the  work  has  been  substantially 
performed  it  must  be  accepted. 

Hawkins  agreed  with  Graham  in  writing  to  furnish  and  set  up  a  heat- 
ing system  in  Graham's  mill  according  to  certain  specifications,  and  he  was 
to  be  paid  upon  its  satisfactory  completion.  If  the  system  was  not  satis- 
factory, he  was  to  remove  it  at  his  own  expense.  Held,  that  the  question 
as  to  whether  the  system  was  satisfactory  was  to  be  determined,  not  by 
the  particular  taste  and  liking  of  the  mill  owner,  but  by  the  judgment  of 
a  reasonable  man.  —  Hawkins  v.  Graham,  149  Mass.  284. 

Richardson  agreed  to  sink  a  well  for  Mead  which  would  produce  a  flow 
of  water  satisfactory  to  Mead.  It  was  held  that  Mead  cannot  arbitrarily 
say  he  is  dissatisfied  and  refuse  to  pay,  if  the  well  does  satisfy  his  needs  and 
should  satisfy  a  reasonable  man.  —  Richardson  v.  Mead,  11  S.  D.  639. 

Legal  Tender.  —  The  payment  of  money  must  be  made  in 
what  is  termed  legal  tender,  unless  the  creditor  consents  to 
accept  something  else.  Legal  tender  is  money  which  Congress 
has  declared  must  be  accepted  if  offered  in  payment  of  an  un- 


6o  CONTRACTS 

disputed  debt.  All  gold  coins  and  silver  dollars  are  legal  tender 
for  any  amount;  Silver  coins  of  denominations  less  than  the 
dollar  are  legal  tender  in  amounts  not  exceeding  ten  dollars. 
Minor  coins  such  as  nickel  and  copper  pieces  are  legal  tender 
in  amounts  not  exceeding  twenty-five  cents.  Federal  Reserve 
notes  are  legal  tender.  United  States  notes  or  "  greenbacks  " 
are  legal  tender  in  any  amount,  except  for  duties  on  imports 
and  interest  on  the  public  debt.  National  bank  notes  are  not 
legal  tender,  but  are  accepted  by  the  United  States  government 
for  all  debts  except  duties  on  imports.  Gold  and  silver  certifi- 
cates are  not  legal  tender.  In  actual  practice  the  national  bank 
notes  and  the  gold  and  silver  certificates  are  taken  without 
question  and  pass  as  freely  as  any  other  kind  of  money,  and 
their  acceptance  constitutes  good  payment.  The  receipt  of 
counterfeit  money  does  not  constitute  payment,  and  it  can  be 
returned  within  a  reasonable  time  and  good  money  demanded 
in  its  place. 

Tender.  —  The  creditor  may  refuse  to  accept  the  money 
which  the  debtor  claims  is  due  him.  In  such  a  case  if  the  debtor 
makes  a  sufhcient  tender  of  the  amount  the  debt  is  not  canceled, 
but  interest  from  that  time  stops  and  he  will  be  relieved  from 
paying  any  costs  in  a  suit  against  him  for  the  debt.  To  consti- 
tute a  sufficient  tender  the  exact  amount  of  money  must  be  pro- 
duced and  offered,  and  the  offer  must  be  made  unconditionally, 
that  is,  it  must  be  made  without  any  reservation.  Even  the 
offer  to  pay  upon  condition  that  the  creditor  give  a  receipt  for 
the  money  is  not  a  good  legal  tender.  Unless  the  contract 
provides  a  place  of  payment,  the  tender  must  be  made  to  the 
creditor  personally  if  he  is  within  the  state. 

Hart  owed  Mead  $540.  Hart  went  to  Mead's  office,  tendered  pay- 
ment, and  demanded  a  receipt.  This  was  not  a  good  tender,  as  a  condition 
was  attached.  Hart  met  Mead  on  the  street  where  he  tendered  payment. 
This  was  not  a  good  tender,  as  it  was  not  made  in  a  proper  place.  Hart 
offered  Mead  silver  certificates  to  the  amount  of  $540  in  payment  of  the 
debt.  This  was  not  a  good  tender,  for  silver  certificates  are  not  legal  tender. 
Hart  went  to  Mead's  home  one  evening  and  tendered  currency  in  pay- 
ment. This  was  not  a  good  tender,  for  it  was  made  at  the  wrong  time  and 
place.  Hart  tendered  nine  fifty-dollar  bills  and  one  one-hundred-dollar 
bill  and  demanded  the  change.  This  was  not  a  good  tender,  for  the  exact 
amount  should  be  tendered. 


DISCHARGE  OF  CONTRACT  6i 

Had  Mead  accepted  any  of  these  tenders  the  debt  would 
have  been  canceled. 

Impossibility  of  Performance.  —  We  have  seen  that  when 
the  act  to  be  performed  is  an  impossibility  on  the  face  of  it, 
no  contract  exists,  as  such  an  act  is  not  a  valid  consideration. 
But  the  question  comes  up  when  the  impossibility  arises  after 
the  formation  of  the  contract,  and  the  rule  then  is  that  it  does 
not  excuse  performance. 

Anderson  contracted  in  March  to  raise  and  deliver  to  May  591  bushels: 
of  beans.  Anderson  delivered  only  152  bushels  because  most  of  his  crop  was 
destroyed  by  early  and  unusual  frost.  Held,  that  this  did  not  excuse  his 
nonperformance.  When  such  causes  may  intervene  they  should  be  guarded 
against  in  the  contract.  —  Anderson  v.  May,  50  Minn.  280. 

But  if  the  promisor  makes  his  promise  conditional  upon  an 
event,  the  happening  of  which  makes  the  performance  impos- 
sible, this  of  course  excuses  him,  as  where  a  clause  is  inserted 
providing  for  the  contingency  of  fire,  or  strikes,  or  floods.  If 
the  promise  is  made  unconditionally,  the  promisor  takes  all  risk. 

There  are  contingencies  which  may  arise,  however,  which  the 
courts  hold  are  sufficient  excuse  for  not  fulfilHng  the  contract. 
Among  these  are  impossibilities  arising  from  a  change  in  the 
law  of  one's  own  country. 

Miller  leased  from  Cordes,  a  wooden  building  in  Grand  Rapids,  Mich., 
for  ten  years.  The  lease  contained  this  covenant,  "If  said  building  burns 
down  during  this  lease,  said  Cordes  agrees  to  rebuild  the  same  in  a  suitable 
time,  for  said  Miller."  Miller  occupied  the  premises  for  two  years,  when 
it  was  destroyed  by  fire.  About  the  time  of  the  fire  an  ordinance  was  passed 
prohibiting  the  erection  of  wooden  buildings  within  certain  limits  which 
embraced  this  site.  Held,  that  the  covenant  was  released  by  the  ordinance, 
making  its  fulfillment  unlawful.  —  Cordes  v.  Miller,  39  Mich.  581. 

Another  contingency  which  will  excuse  the  failure  to  fulfill  is 
where  the  continued  existence  of  a  specific  thing  is  necessary  to 
the  performance  of  the  contract.  The  destruction  of  that  thing 
through  no  fault  of  either  party  discharges  the  contract. 

The  lessee  of  a  coal  mine  covenanted  in  his  lease  to  work  the  same 
during  the  continuance  of  his  lease  in  a  good  and  workmanlike  manner. 
The  court  held  he  was  excused  from  further  performance  when  the  coal 
mine  became  exhausted.  —  Walker  v.  Tucker,  70  111.  527. 

Cleary  entered  into  a  contract  with  Sohier  to  lath  and  plaster  a  cer- 
tain building.  After  he  had  partially  completed  his  part  of  the  contract 
the  building  burned.     Held,  that  Cleary  was  excused  thereby  from  ful- 


62  CONTRACTS 

filling  the  remainder  of  his  contract,  and  could  recover  a  reasonable  amount 
for  the  work  already  done.  —  Cleary  v.  Sohier,  120  Mass.  210. 

A  contract  for  the  rendering  of  personal  services  is  discharged 
by  the  death  or  illness  of  the  promisor. 

Rosa  contracted  with  Spalding,  who  was  proprietor  of  a  theater,  to 
furnish  an  opera  troupe  to  give  a  certain  number  of  performances.  The 
leader  and  chief  attraction  of  the  company  became  ill  and  unable  to  sing, 
and  Rosa  did  not  perform  his  agreement.  In  an  action  to  recover  damages 
for  the  breach  it  was  held  that  as  the  illness  of  the  chief  singer  made  it  prac- 
tically undesirable  and  impossible  to  appear  without  him,  and  as  it  was 
caused  by  circumstances  beyond  his  control,  it  constituted  a  valid  excuse  for 
nonperformance.  —  Spalding  v.  Rosa,  N.  Y.  40. 

Blakely  *and  Sousa  made  an  agreement  by  which  Blakely  was  to  be 
manager  and  Sousa  the  leader  of  a  band  which  was  to  tour  the  country. 
The  peculiar  abilities  of  both  Blakely  and  Sousa  were  an  important  con- 
sideration in  making  the  contract.  It  was  held  that  the  death  of  Blakely 
dissolved  the  contract  and  that  his  administratrix  could  not  substitute 
another  manager  and  insist  on  the  performance  of  the  contract. 

—  Blakely  v.  Sousa,  197  Pa.  State  305. 

Discharge   by   Operation   of  Law.  —  Where  a  new  law    is 

passed  which  makes  an  existing  contract  illegal,  the  parties  will 

not  be  expected  to  perform,  and  the  contract  will  be  discharged. 

Gains  contracted  to  erect  a  five-story  frame  apartment  house  for  Lurch 
on  a  certain  lot  near  the  center  of  the  city.  Before  the  permit  was  secured 
a  city  ordinance  was  passed  establishing  a  "fire  zone"  and  in  this  zone  all 
buildings  must  be  hereafter  constructed  of  brick  or  some  fire  proof  material. 
Lurch's  lot  was  within  this  zone,  so  the  contract  was  discharged. 

Other  examples  may  be  found  in  case  of  war.  When  two 
countries  go  to  war  contracts  between  citizens  of  the  respective 
countries  on  which  nothing  has  been  done  are  discharged. 
Contracts  on  which  something  has  been  done  may  be  suspended 
until  the  war  is  over. 

Discharge  by  Alteration  of  a  Written  Instrument.  —  If  a 
written  instrument  is  altered  or  erased  in  a  material  part  by  a 
party  to  the  contract,  or  by  a  stranger  while  the  instrument  is 
in  the  possession  of  the  party  to  it,  and  with  said  party's  con- 
sent' and  without  the  consent  of  the  other  party  to  the  instru- 
ment, the  contract  will  be  discharged,  if  the  alteration  is  made 
with  an  intent  to  defraud;  but  if  innocently  made  there  can 
be  recovery  on  the  original  consideration. 

A  promissory  note  dated  October  11,  was  made  by  Steele  and  Newson, 
payable  to  their  own  order  one  year  from  date.    It  was  indorsed  by  them 


DISCHARGE  OF  CONTRACT  63 

to  Wood.  "September"  had  been  struck  out  and  "October"  put  in  as 
the  date.  The  change  was  made  after  Steele  had  signed  the  note  as  surety 
and  without  his  knowledge  or  consent.  Held,  that  it  was  a  material  altera- 
tion -and  extinguished  Steele's  liability.  —  Wood  v.  Steele,  6  Wall.  (U.S.)  80. 

But  if  the  alteration  be  made  without  intention  to  defraud, 

there  can  be  a  recovery  on  the  original  contract. 

At  the  maturity  of  a  joint  promissory  note  a  renewal  note  was  given 
which  was  invalidated  as  to  one  of  the  makers  on  account  of  a  material 
alteration  made  after  he  signed.  The  alteration  was  the  insertion  of  the 
words  "with  interest"  without  his  knowledge  or  consent.  Held,  that 
recovery  could  be  had  against  him  on  the  original  cause  of  action,  as  there 
was  no  fraudulent  intent  in  the  alteration.  —  Owen  v.  Hall,  70  Md.  97. 

Discharge  by  Breach.  —  We  have  already  considered  how  a 
contract  may  be  terminated  and  discharged  by  fulfilling  the 
terms  thereof.  We  have  now  to  consider  how  it  may  be  dis- 
charged by  failure  or  refusal  of  one  or  both  of  the  parties  to 
fulfill  the  agreement.  When  the  terms  of  the  agreement  have 
been  broken,  there  arises  in  the  place  of  the  contract  a  new  obli- 
gation under  which  the  party  in  default  is  placed.  That  obliga- 
tion is  tQ  pay  to  the  other  party  the  damage  arising  therefrom. 
The  injured  party  acquires  a  new  right  through  the  breach 
called  a  right  of  action. 

A  contract  may  be  broken  in  any  one  of .  three  ways: 

1.  A  party  may  renounce  his  liability  under  the  contract. 

2.  A  party  may,  by  his  own  acts,  make  it  impossible  for 
himself  to  fulfill  the  contract. 

3.  A  party  may  wholly  or  partially  fail  to  perform  what  he 
promised. 

Breach  by  Renouncing  Liability.  —  When  one  party  to  the 
contract  renounces  his  liability  thereunder  before  performance 
is  due  and  declares  that  he  will  not  perform,  a  breach  of  con- 
tract arises  and  the  injured  party  may  at  once  institute  an 
action  for  damages. 

Roehm  brought  an  action  to  recover  damages  for  breach  of  a  contract 
to  accept  and  pay  for  hops.  Before  the  time  of  delivery  Horst  advised 
Roehm  that  he  would  not  accept  the  hops.  The  Court  held  that  the  abso- 
lute refusal  to  abide  by  the  contract,  made  before  performance  was  due, 
gave  Roehm  an  immediate  right  of  action  for  damages. 

,  —  Roehm  v.  Horst,  178  U.S.  i. 

If  during  the  course  of  the  performance  one  of  the  parties 
clearly  refuses  to  continue  with  his  part,  the  contract  is  broken, 


64  CONTRACTS 

and  the  other  party  is  excused  from  further  performance,  —  in 
fact,  he  must  not  go  on  if  his  continuing  would  increase  the 
damage. 

Marsiglia  delivered  to  Clark  a  number  of  pictures  to  be  cleaned  and 
repaired.  After  he  had  commenced  Marsiglia  gave  him  orders  to  stop,  as 
he  had  decided  not  to  have  the  work  done.  Clark,  however,  finished  the 
work  and  claimed  the  whole  amount  of  the  contract.  Held,  that  he  had  no 
right  to  increase  the  amount  of  damages  by  going  on  with  the  work.  When 
the  contract  was  broken  he  was  entitled  to  just  compensation  for  the  injury- 
he  had  sustained  by  the  breach  of  the  agreement. 

—  Clark  V.  Marsiglia,  i  Denio  (N.  Y.)  317. 

Breach  by  Making  Performance  Impossible.  —  If  one  of  the 
parties  puts  it  out  of  his  power  to  perform  before  the  perform- 
ance is  due,  the  other  party  need  not  wait,  but  may  consider 
the  contract  broken. 

Marsh  promised  in  writing  to  pay  Wolf  a  certain  sum  of  money.  The 
note  contained  the  following  condition:  "This  note  is  made  with  the  ex- 
press understanding  that  if  the  coal  mines  in  the  Marsh  Ranch  yield  no 
profit  to  me  this  note  is  not  to  be  paid  and  the  obligation  herein  expressed 
shall  be  null  and  void."  Thereafter  and  before  the  mines  had  yielded  any- 
thing Marsh  sold  them.  Held,  that  the  yielding  of  profit  by*  the  mines 
was  a  condition  precedent  to  the  payment  of  the  note,  but  Marsh  had  ren- 
dered the  happening  of  that  condition  impossible  by  selling  the  mine;  there- 
fore he  must  pay  the  note.  —  Wolf  v.  Marsh,  54  Calif.  228. 

And  this  is  true  if  the  impossibility  is  created  after  the  con- 
tract is  performed  in  part. 

Woodberry,  the  owner  of  a  steamboat,  employed  Warner,  a  pilot,  at  a 
salary  of  $720  per  year  with  the  further  agreement  that  as  soon  as  the  net 
earnings  of  the  boat  should  amount  to  $8000  he  should  become  the  owner 
of  a  one-fourth  interest.  In  about  two  years  Woodberry  sold  the  boat. 
Held,  that  as  he  had  put  it  out  of  his  power  to  fulfill  the  contract,  he  was 
liable  to  Warner  for  the  value  of  his  services  over  and  above  his  regular 
wages.  —  Woodberry  v.  Warner,  53  Ark.  488. 

In  order  that  one  party  may  recover  damages  for  a  breach 
of  contract  on  the  part  of  the  other  the  first  party  must  show 
that  the  second  party's  promise  was  not  dependent  upon  the 
acts  of  the  first  party;  that  is,  if  A  is  to  draw  a  ton  of  coal  for 
B  for  $7,  A  cannot  sue  B  for  payment  until  he  has  performed 
his  own  part. 

Clark  owned  a  tarm  of  200  acres  and  agreed  to  pay  Webfer  $100  if  he 
would  find  a  purchaser  for  it.  Weber  found  a  man  who  bought  part  of  it, 
and  then  sued  for  the  $100.    Held,  that  he  could  not  recover,  as  he  was 


DISCHARGE  OF  CONTRACT  65 

not  entitled  to  the  money  until  he  had  performed  his  part  of  the  contract 
and  found  a  purchaser  for  the  whole  farm.  —  Weber  v.  Clark,  24  Minru  354. 

This  rule  does  not  apply  to  contracts  in  which  the  promises 

are  independent  of  each  other.    Here  a  breach  by  one  does  not 

discharge  the  other. 

The  covenant  in  a  lease  provided  that  Tracy,  the  lessee,  might  have 
the  refusal  of  the  premises  at  the  expiration  of  the  lease  for  three  years  longer. 
When  the  lease  expired  the  Albany  Exchange  Company,  the  landlord,  refused 
to  renew  it  at  the  same  rate,  but  asked  $200  per  year  more.  Tracy  was  some- 
what in  arrears  of  rent  at  the  expiration  of  the  first  lease.  Held,  that  the 
payment  of  the  rent  was  not  a  condition  precedent  to  the  right  of  Tracy 
to  a  renewal  of  the  lease,  the  covenant  to  renew  and  the  covenant  to  pay 
rent  being  independent  promises.  Tracy  could  bring  his  action  for  breach 
of  the  contract  to  renew,  although  he  was  guilty  of  default  in  the  pay- 
ment of  his  rent.  —  Tracy  v.  Albany  Exchange  Co.,  7  N.  Y.  472. 

Breach  by  Failure  to  Perform  —  Entire  and  Divisible  Con- 
tracts. —  It  is  clear  that  when  one  party  wholly  fails  in  the  act 
that  was  the  entire  consideration  for  the  second  party's  promise, 
and  that  must  be  done  before  the  second  party  can  be  required 
to  perform  his  part,  the  second  party  will  be  excused.  But 
certain  cases  come  up  in  which  one  party  has  done  part  of  what 
he  promised  or  a  part  of  the  contract  has  been  carried  out,  and 
we  have  to  consider  whether  or  not  the  whole  contract  has 
therefore  failed.  In  other  words,  is  it  an  entire  or  a  divisible 
contract?  A  common  illustration  of  the  cases  under  which  this 
question  arises  is  an  agreement  to  deliver  and  pay  for  goods  in 
installments  at  different  times. 

Myer  sold  to  Wheeler  ten  carloads  of  barley,  like  sample,  to  be  delivered 
from  time  to  time  on  the  railroad  tracks  at  Calmar,  Iowa,  and  Wheeler  was 
to  pay  seventy  cents  per  bushel  for  each  carload  when  delivered.  After  the 
first  car  was  delivered  Wheeler  refused  to  allow  more  than  sixty-five  cents, 
saying  that  the  barley  was  not  equal  to  sample,  but  urged  Myer  to  ship 
balance.  Myer  refused.  Held,  that  the  contract  was  divisible,  and  that  the 
refusal  to  pay  for  the  first  carload  did  not  entitle  Myer  to  rescind  and  refuse 
to  deliver  the  other  carloads;  that  Myer  could  recover  the  actual  value  of 
the  car  delivered,  and  Wheeler  could  recover  damages  for  the  failure  to 
deliver  the  other  nine  cars.  —  Myer  v.  Wheeler,  65  Iowa  390. 

But  the  courts  in  this  country  generally  seem  to  hold  the 
contrary  view,  and  make  the  test  the  real  intent  of  the  parties. 
If  it  was  intended  to  be  all  one  contract,  the  courts  do  not  make 
it  divisible  because  it  is  to  be  executed  or  carried  out  at  stated 
periods. 


66  CONTRACTS 

Norrington  made  a  contract  of  sale  to  Wright  of  5000  tons  of  iron  rails 
for  shipment  from  a  European  port  at  the  rate  of  about  1000  tons  per  month, 
beginning  in  February,  the  whole  contract  to  be  shipped  before  August. 
Norrington  shipped  only  400  tons  in  February  and  885  tons  in  March. 
As  soon  as  Wright  learned  of  the  failure  of  Norrington  to  ship  as  agreed, 
he  refused  to  accept  and  pay  for  what  was  shipped,  and  sought  to  rescind 
the  whole  contract  for  the  failure  to  ship  1000  tons  per  month.  In  this  case 
the  contract  was  held  to  be  entire  and  not  divisible,  and  Wright  had  the 
right  to  rescind  the  whole  contract.  —  Norrington  v.  Wright,  115  U.S.  188. 

QUESTIONS 

1.  How  may  a  contract  be  discharged  by  agreement?  Give  an  example. 

2.  How  may  a  waiver  be  effected? 

3.  When  is  a  contract  said  to  be  terminated  by  performance? 

4.  Give  an  example  of  a  contract  substantially  performed. 

5.  When  a  contract  calls  for  the  payment  of  money,  does  the  ac- 
ceptance of  a  check  discharge  the  contract?     Explain. 

6.  What  rules  of  law  are  applied  to  ''performance  by  one  party  satis- 
factory to  the  other  party?" 

7.  What  is  legal  tender? 

8.  (a)  What   constitutes  a  good  tender  in  the  payment  of  a  debt? 
(b)  What  is  the  effect  of  a  good  tender? 

9.  How  does  impossibility  of  performance  affect  a  contract? 

10.  Give  an  example  of  a  contract  where  performance  is  impossible. 

11.  How  should  the  promisor  protect  himself  against  contingencies 
which  may  arise? 

12.  How  does  death  of  the  promisor  affect  a  contract  involving  per- 
sonal services? 

13.  When  will  a  contract  be  discharged  by  operation  of  law? 

14.  Under  what  conditions  will  the  alteration  of  a  written  instrument 
discharge  the  contract? 

15.  When  is  a  contract  said  to  be  discharged  by  breach? 

16.  In  what  three  ways  may  a  contract  be  broken? 

17.  What  right  has  the  injured  party  when  the  other  party  to  the 
contract  renounces  his  Hability? 

18.  What  happens  if  one  party  refuses  to  continue  with  his  part  of 
the  contract? 

19.  How  may  a  contract  be  broken  by  making  performance  impossi- 
ble? 

20.  How  may  a  breach  result  from  failure  to  perform? 

21.  When  is  a  contract  said  to  be  entire  or  indivisible?  When  di- 
visible? 

10.  DAMAGES 

Nature  and  Extent.  —  As  we  have  already  learned,  the  party 
who  is  guilty  of  a  breach  in  the  performance  of  his  part  of  the 


DAMAGES  67 

contract  may  be  compelled  by  the  courts  to  make  good  the  loss 
incurred  by  the  other  party.  If  the  contract  be  discharged  by 
the  breach,  the  party  not  in  default  is  released  from  further 
performance.  He  may  also  recover  a  pro  rata  amount  upon  the 
part  performed  if  he  has  done  anything  under  the  contract.  In 
certain  cases  there  is  also  provided  the  extraordinary  relief  of 
an  injunction  or  a  specific  performance. 

If  the  action  brought  by  the  party  not  in  default  is  for  money 
damages,  the  amount  allowed  will  be  the  loss  or  injury  caused 
as  the  natural  result  of  the  breach  or  that  would  ordinarily  be 
within  the  contemplation  of  the  parties.  The  object  is  to  com- 
pensate the  party  injured  and  not  to  punish  the  party  in  default. 

Banta  contracted  to  construct  a  refrigerator  for  Beeman,  who  was 
engaged  in  preparing  poultry  for  market,  and  with  a  knowledge  that  he 
intended  to  make  use  of  it  at  once  for  freezing  and  keeping  chickens  for  the 
May  market,  expressly  warranted  that  the  freezer  would  keep  them  in 
perfect  condition.  This  it  failed  to  do,  and  as  a  consequence  a  large  number 
of  chickens  spoiled.  It  was  held  that  Beeman,  in  an  action  on  the  war- 
ranty, could  recover  as  damages  the  difference  in  the  value  of  the  refrigera- 
tor as  constructed  and  its  value  as  it  would  have  been  if  made  according 
to  contract,  and  that  he  could  also  recover  the  market  value  of  the  chickens 
lost,  less  the  cost  of  getting  them  to  market  and  selling  them. 

—  Beeman  v.  Banta,  118  N.  Y.  538. 

Specific  Performance  and  Injunction.  —  The  special  relief  of 
specific  performance  and  injunction  is  granted  only  when  money 
damages  do  not  constitute  an  adequate  remedy,  as  in  a  contract 
calling  for  the  conveyance  of  land.  The  particular  place  could 
not  be  duplicated  elsewhere,  and  it  might  have  a  special  value 
to  the  purchaser  for  which  money  would  but  poorly  compensate 
him.  Specific  performance  would  therefore  be  decreed  at  the 
instance  of  the  purchaser  compelling  the  vendor  to  convey,  but 
it  would  not  be  decreed  against  the  purchaser  to  compel  him  to 
accept  the  property  because  there  would  be  an  adequate  remedy 
at  law  in  the  way  of  damages,  as  the  owner  could  sell  to  some 
one  else,  and  the  difference  between  what  the  purchaser  had 
agreed  to  pay  and  what  he  could  get  for  the  land  after  the 
breach  would  be  the  amount  of  his  damages. 

So  also  the  remedy  by  injunction  is  exercised  only  in  special 
cases  in  which  damages  would  not  afford  adequate  relief  to  the 
injured  party.     An  injunction  is  an  order  from  a  court  restraining 


68  CONTRACTS 

one  from  doing  a  certain  thing,  the  doing  of  which  would  cause 
injury  to  some  one  else. 

Douglas  contracted  with  Vale  for  the  purchase  of  a  tract  of  land,  near 
a  rapid  stream  of  water,  on  which  to  erect  a  factory.  When  the  time  came 
to  deliver  the  deed  to  the  property  Vale  refused  delivery  on  the  ground 
that  the  neighbors  in  the  vicinity  objected  to  a  factory  being  erected  on 
this  particular  site.  As  this  contract  calls  for  the  conveyance  of  land,  Doug- 
las has  the  special  relief  of  specific  performance.  Vale  will  have  to  deliver 
the  deed  according  to  the  terms  of  the  contract. 

Cort,  a  theatrical  manager,  sought  to  restrain  the  Lassards,  who  were 
acrobats,  from  performing  at  a  rival  theater  in  the  same  place.  The  Las- 
sards  had  agreed  to  perform  for  Cort  exclusively  for  six  weeks,  and 
Cort  alleged  that  he  had  prepared  for  them  and  advertised  them  and  that 
he  would  lose  large  profits,  as  they  were  unique  attractions.  Held,  that 
when  a  contract  stipulates  for  special,  unique,  or  extraordinary  personal 
services,  involving  special  merit,  skill,  or  knowledge,  so  that  in  case  of 
default  the  same  services  could  not  be  easily  obtained  elsewhere  nor  be 
compensated  for  by  an  action  at  law,  a  court  of  equity  will  be  warranted 
in  applying  its  preventive  remedy  of  injunction. 

—  Cort  V.  Lassard,  i8  Oregon  221. 

Damages  Allowed.  —  Damages  are  allowed  only  for  actual 

loss  sustained.     The  amount  of  damage  is  estimated  by  the 

judge  or  jury  after  hearing  the  case.    The  party  damaged  must 

show  by  a  preponderance  of  evidence  that  he  has  suffered  a  loss 

in  dollars  and  cents  as  a  result  of  failure  on  the  part  of  the  other 

party  to  the  contract.     The  damages  must  be  shown  to  be  a 

direct  or  natural  result  of  the  breach  of  contract.    No  damage 

as  an  indirect  result  of  a  breach  of  contract  will  be  allowed. 

Evans  purchased  a  machine,  for  use  in  his  factory,  from  the  Bedford 
Manufacturing  Company.  The  machine  was  not  delivered  and  Evans 
brought  suit  for  damages,  claiming  that  he  had  lost  a  great  amount  of 
business  by  not  having  the  machine.  He  could  collect  no  damage  result- 
ing indirectly  from  the  non-delivery  of  the  machine.  The  only  damage  he 
could  collect  would  be  the  difference  between  the  price  he  agreed  to  pay 
for  the  machine  and  the  price  he  would  have  to  pay  for  one  elsewhere. 

In  order  to  avoid  the  necessity  of  proving  in  court  the  amount 
of  damages  suffered  the  parties  sometimes  provide  in  the  con- 
tract, that  in  case  of  breach  damages  shall  be  paid  at  a  specified 
rate  or  lump  sum.  Damages  so  fixed  in  advance  are  called 
liquidated  damages.  The  amount  fixed  must  be  reasonably  near 
the  actual  loss  of  the  injured  party.  If  it  is  so  large  as  to  amount 
to  a  penalty  the  stipulation  will  not  be  enforced,  as  courts  seek 
to  recompense  the  injured  party  and  not  to  punish  the  guilty. 


DISCHARGE  OF  RIGHT  OF  ACTION  69 

Duties  of  Injured  Party.  —  When  a  contract  is  broken  the 

party  damaged  must  do  his  part  to  reduce  the  damages  as  much 

as  possible. 

Harcourt  was  a  business  tenant  in  a  building  in  which  a  water  pipe 
broke  and  damaged  his  stock.  Feeling  that  the  landlord  was  responsible 
for  the  loss,  he  did  not  put  forth  any  effort  to  move  or  protect  his  goods. 
Under  the  circumstances  Harcourt  could  not  collect  damages  which  re- 
sulted from  a  neglect  of  duty. 

QUESTIONS 

1.  What  are  damages?    How  are  damages  recovered? 

2.  What  determines  the  amount  of  damage  allowed? 

3.  What  is  specific  performance? 

4.  When  will  the  special  relief  of  specific  performance  be  granted? 
Give  an  example. 

5.  What  is  an  injunction? 

6.  Is  injunction  a  remedy' for  a  breach  of  contract?     Explain. 

7.  Define  and  explain  liquidated  damages. 

8.  What  are  the  duties  of  the  injured  party  as  to  decreasing  the 
amount  of  damages? 

II.   DISCHARGE  OF  RIGHT  OF  ACTION 

As  the  breach  of  a  contract  gives  rise  to  a  right  of  action 
for  the  damages  suffered,  we  have  to  determine  how  this  right 
may  be  discharged,  and  we  find  there  are  three  means  by  which 
it  may  be  effected,  namely,  by  mutual  agreement,  by  the  judg- 
ment of  a  court,  and  by  the  Statute  of  Limitations. 

By  Mutual  Agreement.  —  The  parties  may  discharge  the 
right  of  action  by  mutual  agreement  if  a  valuable  consideration 
be  given  as  a  payment  in  satisfaction  of  the  damages,  or  if  the 
agreement  is  made  by  an  instrument  under  seal. 

Spaulding  agreed  in  writing  to  pay  Hale  six  sevenths  of  any  loss  he 
might  be  subjected  to  as  the  indorser  of  a  certain  note.  Thereafter  Hale 
executed,  under  seal,  a  receipt  "in  full  satisfaction  of  Spaulding's  liability 
on  the  document."  This  discharged  the  right  of  action  on  the  original 
agreement.  —  Hale  v.  Spaulding,  145  Mass.  482. 

By  Judgment.  —  The  party  may  prosecute  the  right  of 
action  in  the  courts  and  obtain  a  judgment,  the  right  of  action 
being  then  merged  in  the  judgment.  A  judgment  is  the  final 
determination  by  a  court  of  the  rights  of  the  parties  in  an  action. 

By  Statute  of  Limitations.  —  If  the  right  of  action  is  not 


70  CONTRACTS 

merged  in  a  judgment  or  discharged  by  consent  within  a  given 
time,  the  law  will  refuse  to  enforce  it  by  reason  of  the  lapse  of 
time  under  what  is  termed  the  Statute  of  Limitations. 

This  statute,  which  was  first  enacted  in  England,  provided 
that  all  actions  upon  account,  and  some  others,  shall  be  com- 
menced and  sued  within  six  years.  Like  the  Statute  of  Frauds  it 
has  for  its  object  the  discouraging  of  litigation  and  the  suppres- 
sion of  perjury,  as  the  lapse  of  time  makes  the  proof  less  certain 
and  the  resurre^ction  of  old  and  stale  claims  would  be  a  fruitful 
field  for  fraud  and  perjury.  A  provision  similar  to  the  Eng- 
lish statute  has  been  enacted  in  all  of  the  states.  In  New  York 
and  most  of  the  other  states  the  period  is  six  years  on  contracts 
not  under  seal  and  twenty  years  on  sealed  instruments  or  judg- 
ments of  the  court  duly  recorded.  Certain  other  actions  are 
barred  in  three  years,  two  years,  and  one  year. 

The  statutes  in  the  different  states  vary,  and  in  a  number  of 
them  negotiable  instruments  are  not  barred  for  a  longer  time 
than  simple  contracts.  In  most  of  the  states  real  property  actions 
are  given  a  longer  period  to  run. 

When  the  Time  under  the  Statute  Begins.  —  The  time  be- 
gins to  run  from  the  day  the  injured  party  would  be  entitled  to 
bring  a  suit  for  the  claim. 

In  an  action  to  recover  money  paid  under  mistake  it  was  held,  that  it 
was  barred  unless  the  action  was  brought  within  six  years  from  the  date 
of  the  payment  of  the  money,  because  the  right  of  action  accrued  upon  that 
day.  —  Sturgis  v.  Preston,  134  Mass.  372. 

Most  of  the  statutes  provide  that  the  absence  of  the  de- 
fendant from  the  state  at  the  time  the  cause  of  action  arises 
will  postpone  the  running  of  the  statute  until  his  return. 

Emerson  made  a  note,  due  in  1863,  but  did  not  come  into  the  state 
until  1868.  It  was  held  that  an  action  on  the  note,  begun  in  1870,  was  not 
barred  by  a  three-year  Statute  of  Limitations,  because  the  statute  did  not 
run  during  the  debtor's  absence  from  the  state. 

—  Hoggett  V.  Emerson,  8  Kans.  262. 

If  the  plaintiff  is  under  disability,  such  as  infancy,  insanity, 
or  imprisonment,  at  the  time  the  right  of  action  arises,  the  time 
will  be  extended.  But  the  disability  must  exist  at  the  time  the 
statute  begins  to  run  or  it  will  have  no  effect. 


IMPORTANT  POINTS  71 

New  Promise.  —  The  promise  or  right  of  action  may  be  re- 
newed, either  by  a  new  agreement,  which  by  some  of  the  stat- 
utes must  be  in  writing,  or  by  a  payment  on  account.  The 
statute  then  begins  to  run  under  the  new  promise  or  after  the 
new  payment. 

Blaskower,  between  the  years  1878  and  1885,  sold  to  Steel  a  quantity 
of  cigars.  On  May  18,  1885,  there  was  a  credit  on  the  account.  The  court 
held,  that  this  credit  revived  the  whole  account  for  a  further  statutory 
period,  and  the  claim  would  not  outlaw  until  six  years  after  the  payment. 

—  Blaskower  v.  Steel,  23  Oregon  106 

QUESTIONS 

1.  What  is  the  meaning  of  "discharge  of  right  of  action"? 

2.  In  what  three  ways  may  a  right  of  action  be  discharged? 

3.  What  is  a  judgment? 

4.  What  are  usual  provisions  of  the  Statute  of  Limitations? 

5.  When  does  time  under  the  statute  begin  to  run?     Mention  two 
exceptions;  explain  in  full. 

6.  How  does  a  new  promise  or  a  payment  on  account  affect  the 
running  of  the  statute? 

7.  After  how  long  will  an  action  on  an  open  book  account  be  barred 
in  your  state? 

8.  After  how  long  will  an  action  on  a  note  given  for  one  year  be  barred 
in  your  state? 

IMPORTANT   POINTS 

A  contract  is  an  agreement  between  two  competent  parties  based 
upon  sufficient  legal  consideration  to  do  or  not  to  do  some  particular 
thing  which  is  possible  to  be  done  and  is  not  prohibited  by  law. 

The  four  necessary  elements  in  every  binding  contract  are :  com- 
petent parties,  agreement,  legal  subject  matter,  and  consideration. 

Contracts  under  seal  are  known  as  formal  contracts. 

A  parol  contract  is  one  not  under  seal.    It  may  be  oral  or  written. 

An  express  contract  is  one  in  which  all  of  the  conditions  and 
terms  are  fully  stated. 

An  implied  contract  is  one  in  which  some  condition  or  term  is  not 
expressed,  and  the  circumstances  of  the  case  determine  the  missing 
condition. 

An  executed  contract  is  one  fully  performed. 

An  executory  contract  is  one  wherein  something  is  yet  to  be 
done  by  one  or  both  of  the  parties. 

The  parties  to  a  contract  must  be  competent  under  the  law.   . 

Infants*  contracts  in  general  are  voidable  and  not  void. 

An  infant's  contract  with  an  adult  is  binding  upon  the  adult. 


72  CONTRACTS 

An  infant  has  a  right  to  ratify  or  disaffirm  his  contract  upon  be- 
coming of  age.  He  may  disaffirm  at  any  time  before  he  becomes 
of  age. 

An  infant  cannot  disaffirm  a  part  of  a  contract  and  affirm  a  part. 

An  infant's  contract  for  necessaries  at  a  reasonable  price  is 
binding. 

The  right  of  a  married  woman  to  make  a  contract  has  been  en- 
larged by  statute  until  she  has  nearly  the  same  right  as  any  other 
person. 

Contracts  between  citizens  and  alien  enemies  are  void  if  they 
tend  to  give  aid,  comfort,  or  information  to  the  enemy. 

A  promise  not  supported  by  consideration  cannot  be  enforced. 

"Good"  consideration  alone  will  not  support  a  promise. 

Past  consideration  will  not  support  a  promise. 

Part  payinent  of  a  debt  after  it  is  due  does  not  cancel  the  debt, 
even  though  it  is  accepted  in  full  satisfaction  and  a  receipt  in  full  is 
given. 

In  case  the  amount  of  a  debt  is  in  dispute  and  a  compromise 
agreement  is  entered  into,  this  agreement  is  binding. 

There  is  no  contract  until  the  minds  of  the  parties  meet. 

Agreement  is  the  offer  on  the  part  of  one  party  and  the  acceptance 
on  the  part  of  the  other  party  to  a  contract. 

Unless  otherwise  directed,  the  acceptance  should  be  made  in  the 
same  way  the  offer  is  made. 

An  offer  may  be  withdrawn  at  any  time  before  there  is  an  accept- 
ance unless  consideration  has  been  given  for  keeping  it  open  a 
stated  time. 

An  offer  made  by  mail  is  binding  as  soon  as  the  letter  of  accept- 
ance is  mailed. 

There  must  be  no  condition  attached  to  the  acceptance. 

The  offerer  cannot  bind  the  offeree  on  a  contract  where  he  so 
words  his  proposition  that  the  absence  of  a  reply  will  be  considered 
to  be  an  acceptance  of  the  offer. 

Business  relations,  past  deaUngs,  and  customs  are  sometimes 
factors  in  determining  the  meaning  of  a  contract. 

The  acceptance  must  be  communicated. 

A  mere  intention  to  accept  is  not  a  good  acceptance. 

An  acceptance  properly  made  binds  both  parties. 

Contracts  obtained  by  duress  or  undue  influence  are  voidable. 

Assignments  of  contracts  may  be  made  by  act  of  the  parties  or 
by  operation  of  law. 

Contracts  to  pay  money  or  deliver  goods  are  assignable. 

Contracts  involving  personal  services  are  not  assignable  without 
the  consent  of  the  parties  concerned. 

The  assignee  of  a  contract  is  subject  to  all  the  defenses  that 


IMPORTANT  POINTS  73 

might  have  been  set  up  between  the  original  parties,  up  to  the  time 
of  notice  of  the  assignment. 

A  third  person  who  interferes  with  the  performance  of  a  contract 
is  liable  to  the  injured  party. 

Witnesses  may  be  called  to  prove  an  oral  contract. 

The  instruments  themselves  are  the  best  evidence  of  written 
contracts. 

In  case  a  written  instrument  is  lost  or  destroyed  the  existence  of 
the  contract  may  be  estabhshed  by  parol  evidence. 

Parol  evidence  cannot  be  used  to  vary,  change,  or  contradict  the 
terms  of  a  written  contract. 

Contracts  entered  into  over  the  telephone,  for  the  protection  of 
all  concerned,  should  be  confirmed  in  writing. 

The  subject  matter  of  a  contract  may  be  any  legal  act  to  be  done 
or  omitted. 

Wagering  contracts  are  void. 

Fraud  practiced  in  connection  with  any  contract  makes  the  con- 
tract voidable  at  the  option  of  the  innocent  party. 

Contracts  in  general  restraint  of  trade  are  void.  Contracts  in 
reasonable  restraint  of  trade  are  binding. 

There  must  be  some  consideration  in  every  executory  contract. 

Consideration  must  be  present  or  future. 

A  promise  to  do  or  to  forbear  doing  some  act  is  sufficient  con- 
sideration. 

Any  thing  or  any  promise  which  is  a  loss  or  inconvenience  to  the 
promisor  is  sufficient  consideration  in  a  contract. 

Consideration  does  not  have  to  be  adequate. 

Where  there  is  some  uncertainty  as  to  the  meaning  of  terms  in 
a  contract  the  intention  of  the  parties  is  ascertained. 

Letters  exchanged  between  two  parties  may  constitute  a  con- 
tract. 

In  general  a  contract  is  divisible  when  the  consideration  is 
divisible. 

Liquidated  damages  which  amount  to  a  penalty  cannot  be  sus- 
tained. 

Specific  performance  is  a  remedy  only  where  money  damages 
are  not  adequate. 

If  one  party  fails  to  perform,  the  other  party  may  treat  the  con- 
tract as  terminated. 

A  contract  is  discharged  by  any  means  whereby  the  relationship 
of  the  parties  thereto  is  terminated. 

A  contractual  obligation  may  be  terminated  by  agreement,  sub- 
stitution, impUcation,  performance,  death  of  one  party,  impossibility 
of  performance,  pajmient,  operation  of  law,  breach,  accord  and 
satisfaction.  Statute  of  Limitations,  bankruptcy. 


74  CONTRACTS 

The  effect  of  tender  is  to  stop  the  running  of  interest  and  the  pay- 
ment of  costs.  The  following  rules  must  be  observed  in  tendering 
payment : 

1.  The  exact  amount  due  must  be  tendered. 

2.  It  must  be  in  legal  currency  of  the  country. 

3.  It  must  be  unconditional. 

4.  The  tender  must  be  kept  good. 

The  debtor  is  under  obUgation  to  seek  the  creditor  and  tender 
payment. 

Payment  by  check  does  not  cancel  the  debt  until  the  check  is 
honored  at  the  bank. 

The  Statute  of  Limitations  does  not  extinguish  the  debt,  but  bars 
suit  to  recover. 

Time  under  the  Statute  of  Limitations  begins  to  run  when  a  suit 
might  be  brought  to  enforce  the  obligation.  A  note  given  for  one 
year  would  be  enforceable  for  seven  years  in  states  where  the  time 
under  the  statute  is  six  years. 

When  one  party  renounces  his  contract  the  injured  party  may 
take  action  at  once  without  waiting  for  the  time  under  the  contract 
to  expire. 


TEST    QUESTIONS 

1.  When  are  formal  contracts  necessary? 

2.  What  importance  is  attached  to  the  use  of  the  seal? 

3.  What  is  the  relative  importance  of  consideration  in  executed  and 
executory  contracts? 

4.  How  does  incompetency  of  one  of  the  parties  thereto  affect   a 
contract? 

5.  What  purpose  does  a  "power  of  attorney"  serve? 

6.  How  is  the  identity  of  the  parties  to  a  contract  a  factor  in  deter- 
mining its  validity? 

7.  Under  what  conditions  will  misrepresentation  vitiate  a  contract? 

8.  Is   an  adequate   consideration  necessary    to    the    validity   of   a 
contract? 

9.  Are  contracts  entered  into  over  the  telephone  binding?    Explain. 

10.  Under  what  conditions  is  the  remedy  of  specific  performance  avail- 
able? 

11.  If  a  minor  ratifies  a  contract  on  becoming  of  age,  must  he  do  so 
in  writing? 

12.  What  is  the  meaning  of  "performance  satisfactory  to  one  of  the 
parties"  and  "substantial  performance"? 


CASE  PROBLEMS  75 

13.  What  is  the  effect  of  a  strike  on  the  carrying  out  of  a  contract? 

14.  Are  the  rights  of  an  assignee  affected  by  any  counter  claim  or 
set-off? 

15.  Can  a  minor  avoid  his  contract  when  he  cannot  return  the  article 
received  under  the  contract?      Explain. 

16.  Is  a  consideration  of  one  dollar  generally  sufficient? 

17.  How  are  contracts  enforced  or  damages  collected? 

18.  What  are  the  provisions  of  the  fourth  section  of  the  Statute  of 
Frauds? 

19.  Under  what  conditions  is  a  person  bound  by  a  contract  which  he 
does  not  read  before  signing? 

20.  How  may  an  existing  contract  be  changed? 

21.  When  the  parties  cannot  agree  on  the  meaning  of  a  contract,  what 
should  they  do? 

22.  What  facts  outside  the  contract  may  have  a  bearing  on  its  inter- 
pretation? 

23.  How  are  injunctions  secured? 

CASE   PROBLEMS 

Give  the  decision  and  the  principle  or  principles  of  law  involved  in  each 
case. 

1.  Morris  says  to  Larson,  "I  will  sell  you  my  horse  and  delivery 
wagon  for  $200."  Larson  replies,  "I  will  take  them  at  that  price."  Is 
there  a  contract?     Explain. 

2.  A  agrees  to  give  B  $10  for  delivering  to  him  one  ton  of  hay.  B  de- 
livers the  hay,  but  A  has  not  yet  paid  him  for  it.  Is  the  contract  executed 
or  executory  on  A's  part?     On  B's  part? 

3.  Baker  offers  to  sell  Holt  his  automobile  for  $600.  Holt  replies,  "I 
will  accept  your  offer  and  take  the  machine  at  $600,  provided  you  will 
accept  $300  in  cash  and  my  note  at  two  months  for  the  balance."  Is  this 
a  contract?     Give  reason. 

4.  If  Baker  agrees  to  Holt's  proposition  in  problem  3,  is  there  a  con- 
tract? 

5.  Green,  in  the  course  of  conversation  with  Lane,  agreed  to  sell  his 
automobile  for  $600.  Lane  replied  he  would  accept.  Nothing  more  was 
said.  A  few  days  later  Lane  demanded  of  Green  the  delivery  of  the  auto- 
mobile. Green  in  the  meantime  had  decided  not  to  sell.  What  are  the 
rights  of  the  parties?     Explain. 


76  CONTRACTS 

6.  Jackson,  a  grocer,  by  mistake  sent  a  bushel  of  potatoes  to  the  home 
of  Loomis,  where  they  were  consumed.  It  was  known  that  a  mistake  had 
been  made  before  the  potatoes  had  been  consumed.  Will  Loomis  have  to 
pay  for  the  potatoes?    Explain. 

7.  Carpenter,  an  infant,  traded  with  Smith  a  flock  of  sheep  for  a 
horse.  Later,  becoming  tired  of  his  bargain,  he  tendered  back  the  horse 
and  demanded  his  sheep.  At  the  time  of  the  trade  Carpenter  had  stated 
that  he  was  over  twenty-one  years  of  age,  when,  in  fact,  he  was  but  eighteen. 
Could  he  recover  his  sheep? 

8.  After  the  trade  in  problem  7,  suppose  that  Smith  becomes  tired 
of  the  bargain,  tenders  back  the  sheep,  and  demands  the  horse,  claiming 
his  right  to  disaffirm  the  contract  because  Carpenter  was  not  of  age.  Can 
he  recover  his  horse? 

9.  In  problem  7  suppose  neither  party  tires  of  the  bargain,  but  Car- 
penter, after  he  becomes  of  age,  is  in  debt  and  his  creditors  seek  to  recover 
the  sheep  on  the  ground  that  the  contract  was  made  during  Carpenter's 
infancy.     Can  they  succeed? 

10.  Edwards,  an  infant,  agreed  with  Larkin  to  purchase  his  automobile. 
After  Edwards  became  of  age  and  before  he  had  disaffirmed  the  contract, 
Larkin  sued  him  for  damages  because  of  his  failure  to  take  the  machine. 
Was  the  contract  binding,  or  was  Edwards  bound  to  disaffirm  the  contract 
upon  becoming  of  age? 

11.  One  Stewart  sold  to  Haines,  an  infant,  a  suit  of  clothes,  which  were 
necessaries  and  with  which  he  was  not  properly  provided.  The  suit  was 
reasonably  worth  $25.  Stewart  charged  him  $50  for  it.  Could  Haines 
recover  the  $50  or  any  part  of  it? 

12.  Strong,  an  infant  and  a  son  of  a  laboring  man,  bought  of  McGuire 
a  gold  watch  worth  $50.  McGuire  sought  to  hold  Strong  for  the  price  of 
the  watch,  claiming  that  it  was  for  necessaries.    Could  he  recover? 

13.  In  problem  12,  if  Strong  were  the  son  of  a  bank  president  and  a 
wealthy  man,  would  the  contract  be  for  necessaries? 

14.  In  problem  13,  if  Strong's  father  had  already  provided  him  with  a 
good  gold  watch  before  he  purchased  the  watch  of  McGuire,  could  McGuire 
recover  as  for  necessaries? 

15.  Dent,  an  infant,  contracted  for  the  purchase  of  furniture.  He  paid 
$100  at  the  time  of  signing  the  contract  and  agreed  to  pay  $25  each  month 
for  twelve  months.  When  the  furniture  was  delivered  Dent  refused  to 
accept  it  and  he  demanded  the  return  of  the  $100  paid.  What  are  the 
rights  of  the  parties? 


CASE  PROBLEMS  77 

16.  Larson,  an  infant,  bought  a  watch  on  credit  for  which  he  agreed 
to  pay  $75.  He  kept  the  watch  but  refused  to  pay  on  the  ground  that  it 
was  bought  during  infancy.    What  are  the  rights  of  the  parties? 

17.  Cosgrove,  an  infant,  bought  a  horse  for  $200  from  Demuth.  Within 
six  months  the  horse  died.  What  are  the  legal  rights  of  the  parties  when 
Cosgrove  becomes  of  age? 

18.  A  contracted  with  B,  an  insane  person,  not  knowing  of  B's  insanity. 
B's  condition  was  such  at  times  that  it  was  not  noticeable  that  he  was  of 
unsound  mind.  Under  their  contract  A  purchased  a  horse  and  wagon  of 
B  and  paid  him  a  fair  price  for  it,  and  afterwards  disposed  of  the  wagon. 
Could  B  repudiate  the  contract? 

19.  Harper  owes  Wilson  $100  which  is  due  to-day.  Wilson  calls  to 
collect,  but  on  request  of  Harper,  agrees  to  wait  60  days  longer.  Can 
Wilson,  notwithstanding  this  new  agreement,  collect  the  amount  before  the 
expiration  of  60  days? 

20.  Morton  meets  with  an  accident  and  becomes  unconscious  from  in- 
juries. Bowers  hires  a  conveyance  and  takes  Morton  home.  Is  Morton 
liable  to  Bowers  for  the  expense?     Explain. 

21.  Williams,  an  infant  twenty  years  old,  buys  a  horse  of  Jackson  and 
pays  the  price  agreed  upon.  Two  years  later  Williams  seeks  to  return  the 
horse  and  recover  the  purchase  price.     Can  he  recover? 

22.  Manning  wrote  Johnson:  "I  will  sell  you  two  hundred  tons  of 
first-grade  rye  straw  at  $20  per  ton.  Answer  by  return  mail."  Johnson 
accepted  as  directed,  but  the  letter  was  never  received  by  Manning.  Did  a 
contract  arise?     Explain. 

23.  Leslie,  in  company  with  Gates,  went  into  Hart's  store  and  said  on 
one  occasion:  "Let  Gates  have  a  suit  of  clothes  and  I  will  pay  for  it,"  and 
on  another  occasion  under  the  same  circumstances  he  said,  "Let  Gates 
have  a  suit  of  clothes  and  I  will  pay  for  it  if  he  does  not."  Is  Leslie  liable 
in  either  case?    Explain. 

24.  Howe  wrote  to  Marks  as  follows:  "I  wiU  give  you  $20  per  M  for 
50,000  No.  I  H.  red  brick  delivered  f.o.b.  this  city."  Marks  did  not  reply, 
but  shipped  one  carload  at  oiice,  which  Howe  refused  to  accept.  What 
are  the  rights  of  the  parties? 

25.  Fisher  wrote  Daniels,  offering  to  sell  him  one  hundred  barrels  of 
apples  at  $10  per  barrel,  giving  him  ten  days  in  which  to  accept  or  reject 
the  offer.  On  the  third  day  thereafter  Fisher,  without  notice  to  Daniels, 
sold  the  apples  to  Gacon  and  on  the  fourth  day  Daniels  wrote  to  Fisher 
accepting  the  offer.    What  are  the  rights  of  the  parties? 


78  CONTRACTS 

26.  Clark  wrote  Harper  on  the  21st  of  June  that  he  would  sell  him  his 
piano  for  $250.  On  the  25th  of  June  Harper  deposited  in  the  post  office 
an  acceptance  of  the  offer.  This  letter  in  the  regular  course  of  the  mails 
reached  Clark  at  noon  on  the  26th,  but  about  nine  o'clock  on  the  morn- 
ing of  the  26th  Clark  sold  the  piano  to  another  party  and  sent  Harper 
word.    Could  Harper  recover  damages  for  breach  of  contract  against  Clark? 

27.  In  the  above  case  suppose  Clark  sent  the  offer  to  Harper  by  a 
messenger.  Harper,  instead  of  replying  by  the  messenger,  sent  the  letter 
through  the  mail,  but  before  the  letter  reached  Clark  he  had  sold  the  piano. 
Could  Harper  recover  for  breach  of  contract? 

28.  Bates  writes  to  Conley,  "I  will  sell  you  100,000  feet  of  No.  i  cypress 
siding  for  $90  per  thousand."  Conley  replies  at  once  by  letter,  ''I  will 
accept  your  offer."  Bates  supposed  he  had  offered  to  sell  10,000  feet  and 
when  he  discovered  his  mistake  he  refused  delivery.  What  are  the  rights 
of  the  parties?     Does  a  contract  exist?     Explain. 

29.  Stone  promises  to  give  his  grandson  $100  when  the  grandson  be- 
comes of  age.  Stone  does  not  fulfill  his  promise.  Can  the  grandson  compel 
him  to  pay? 

30.  If  in  the  above  case  Stone  had  paid  the  $100,  could  he  recover  it? 

31.  One  Powers  promised  Evans  $100  if  he  would  name  his  child 
after  Powers.  The  child  was  so  named  and  Powers  refused  to  pay. 
Could  Evans  recover? 

32.  Blake  owed  Ayers  $500  which  was  due  July  i.  July  2  Blake  paid 
$400,  and  Ayers,  in  consideration  of  getting  the  money  then,  agreed  to 
accept  it  in  full  payjfient.  Thereafter  Ayers  sued  for  the  balance  of  $100. 
Could  he  recover? 

33.  In  problem  32  if  the  sum  owed  by  Blake  to  Ayers  had  been  in  dis- 
pute, Ayers  claiming  it  to  be  $500  and  Blake  claiming  it  to  be  $350,  and  they 
had  agreed  upon  a  settlement  of  $400,  which  was  accepted  in  full  payment, 
could  Ayers  then  sue  for  the  balance  of  $100  which  he  claims  to  be  due? 

34.  Berry  owes  Hunt  $100  which  is  due.  Hunt  makes  a  promise  to 
extend  the  time  of  payment  one  year.  Thirty  da3^s  after  Hunt  makes  this 
promise  to  extend  the  time  of  payment,  he'sues  Berry  for  the  amount.  Berry 
claims  the  amount  is  not  yet  due.     Can  Hunt  recover? 

35.  If  in  the  above  case  Berry  gives  Hunt  a  chattel  mortgage  on  his 
household  furniture  in  consideration  of  the  extension  of  one  year,  can 
Hunt  sue  before  the  year  has  elapsed? 

36.  Young,  who  had  lost  his  watch,  which  he  valued  at  $250,  offered 
through  the  local  paper  a  reward  of  $25.    Hinkle  found  a  watch  in  which 


CASE  PROBLEMS  79 

was  inscribed  Young's  name.  He  advertised  it  and  Young  claimed  the 
watch.  Later  Hinkle  learned  that  a  reward  had  been  offered  by  Young. 
Can  he  recover  it? 

37.  Anderson,  a  dealer  in  paints,  offered  a  well-known  brand,  through 
an  advertisement  in  a  local  paper,  at  $4  per  gallon.  Green,  a  painter, 
ordered  100  gallons  and  inclosed  his  check  for  $400  in  payment.  x\nderson 
refused  to  sell  him  the  paint  and  returned  his  check.  Did  a  contract  exist? 
Explain. 

38.  Gibson  rescues  Rogers  from  being  run  over  by  a  railroad  train. 
Out  of  a  spirit  of  thankfulness  Rogers  promises  to  give  Gibson  $100.  When 
he  fails  to  keep  his  promise,  Gibson  sues  him.    Can  he  recover? 

39.  Gilbert,  who  is  unable  to  read  or  write  the  English  language,  signs 
a  paper  which  is  presented  to  him  as  an  agreement  for  a  particular  kind 
of  paint.    It  turns  out  to  be  a  promissory  note  for  $50.    Is  the  note  valid? 

40.  Ingham  contracted  with  Brown  to  purchase  one  of  the  two  horses 
which  Brown  owned.  Ingham  thought  he  was  buying  the  bay  horse,  while 
Brown  thought  he  was  selling  the  brown  horse.  Could  Ingham  recover 
damages  for  Brown's  refusal  to  deliver  the  bay  horse? 

41.  Nobel  sells  Dyer  his  grocery  store  and  stock  of  goods.  Dyer  has 
an  opportunity  of  inspecting  the  store,  and  does  look  through  it.  Most 
of  the  stock  had  previously  been  injured  by  a  flood  which  filled  Nobel's 
cellar.  Dyer  purchases,  and  later  upon  discovering  this,  sues  Nobel  for 
damages.     Can  he  recover? 

42.  Allen  was  indebted  to  Watson  for  the  sum  of  $800.  Allen,  not  being 
able  to  pay  the  full  amount,  offered  Watson  $500  in  cash  and  a  secured 
note  for  $150^  which  Watson  agreed  to  accept  in  full  satisfaction  of  the 
debt.    Is  the  debt  discharged?     Explain. 

43.  Gordon  sells  Brownell  a  horse,  telling  him  that  it  is  the  best  horse 
in  the  neighborhood,  and  that  if  he  keeps  it  until  fall  he  can  sell  it  for  $50 
more  than  he  pays  for  it.  As  a  matter  of  fact  the  horse  is  an  inferior  animal 
and  Brownell  loses  on  his  purchase.    Can  he  recover  damages  from  Gordon? 

44.  If  in  problem  43  Gordon  had  represented  that  the  horse  was  but 
eight  years  old,  when  in  fact  it  was  twelve,  but  Gordon  believed  it  was  only 
eight,  could  Brownell  have  recovered  damages? 

45.  If  in  the  above  case  when  Gordon  stated  the  horse  was  but  eight 
years  old  he  knew  that  he  was  twelve,  but  made  the  statement  falsely, 
and  Brownell  knew  all  the  time  that  the  horse  was  twelve  years  old  and 
was 'not  deceived  by  the  statement,  could  Brownell  recover  damages  of 
Gordon? 


8o  CONTRACTS 

46.  A  statute  in  New  York  state  requires  a  physician  to  have  a  license 
before  practicing.  A  physician  practicing  without  such  a  license  sues  for 
his  services.     Can  he  recover? 

47.  Cooley  makes  a  wager  with  Baxter  that  Newman  will  be  elected 
governor  at  the  coming  election.  Newman  is  defeated  and  the  money  is 
paid  to  Baxter.  Cooley  brings  an  action  to  recover  the  money  wagered. 
Can  he  succeed? 

48.  Berton,  who  is  an  important  witness  against  Frank,  a  criminal 
on  trial,  is  promised  $100  by  Frank  if  he  will  refrain  from  testifying.  He 
refuses  to  testify  against  Frank,  and  later  sues  him  for  the  $100.  Can  he 
recover? 

49.  Anson  promises  Barber  $500  if  he  will  not  marry  in  two  years. 
At  the  end  of  two  years.  Barber,  having  not  married,  demands  the  $500. 
Can  he  recover? 

50.  Cross  sold  his  meat  market  to  Sterling  and  agreed  that  he  would 
not  engage  in  the  same  Hne  of  business  in  the  same  city,  which  had  10,000 
inhabitants,  for  the  period  of  ten  years.    Was  this  agreement  valid? 

51.  If  in  the  above  case  Cross  had  agreed  not  to  engage  in  the  same 
business  within  the  state  for  a  period  of  ten  years,  would  the  agreement 
have  been  valid? 

52.  If  Cross  had  been  engaged  in  manufacturing  automobiles,  would 
the  restrictions  in  problem  51  have  been  valid? 

53.  Adams  and  Bentley  go  into  a  grocery  store  together.  Bentley  is 
asked  by  the  grocer  to  pay  an  account  which  he  owes.  Being  unable  to 
pay  it,  he  refuses.  Adams  thereupon,  without  Bentley's  knowledge  or  re- 
quest, pays  the  bill  to  save  his  friend's  credit.  He  then  seeks  to  recover  the 
amount  from  Bentley.     Can  he  recover? 

54.  Holder  wrote  to  Bronson  &  Co.,  as  follows:  "I  am  closing  out  all 
the  No.  I  H.  brick  I  have  on  hand  at  $12  per  M.  If  I  do  not  hear  from 
you  by  return  mail  I  shall  ship  you  one  carload  at  the  price  named." 
Bronson  &  Co.  did  not  reply  and  Holder  shipped  the  bricks.  Was  there  a 
contract?    Discuss  the  rights  of  the  parties. 

55.  Blanchard  offered  apples  to  Minard  at  $8  per  barrel  and  gave  him 
until  3  o'clock  the  next  day  to  decide.  About  noon  the  next  day  Blanchard 
received  an  offer  of  $8.50  per  barrel  and  sold  them.  Before  3  o'clock  Min- 
ard accepted  the  offer.  Minard  sued  Blanchard  for  breach  of  contract. 
Can  he  succeed? 

56.  Benedict  said  to  Marrell:  "Your  offer  to  sell  1000  boxes  of 
XXX  oranges  at  $3.80  per  box  interests  me  and  I  will  give  you  $25  to  keep 


CASE  PROBLEMS  8i 

this  ofifer  open  until  2  o'clock  to-morrow."  Marrell  agreed.  Two  hours 
later  Marrell  sold  the  oranges  to  some  one  else  for  $4  per  box.  There  was 
a  sudden  rise  of  $1  per  box  in  the  price  of  oranges.  What  rights  has 
Benedict?     Explain. 

57.  Limanowes  Davis  $500.  Liman  agrees  to  sell  to  Noble  a  team  of 
horses  for  $550,  provided  Noble  will  pay  him  $50  in  cash  and  will  pay- 
Davis  $500  within  ten  days.  Noble  takes  the  team  and  pays  the  $50  in 
cash.  Liman  departs  from  the  country.  Davis  brings  action  against  Noble 
for  the  $500.     Can  he  recover? 

58.  Drake  undertakes  to  do  certain  fine  decorating  and  interior  fin- 
ishing in  Hopkins's  house.  Drake  assigns  the  contract  to  Cooper,  who 
seeks  to  go  on  with  the  work.  Can  he  complete  the  work  and  recover 
of  Hopkins? 

59.  Grant,  who  was  administrator  of  the  estate  of  Shepherd,  stated 
orally  to  Downs,  a  creditor  of  Shepherd's,  that  he  would  see  that  Downs 
was  paid  the  sum  due  him;  if  it  did  not  come  out  of  the  estate  he  would 
pay  it  himself.    The  estate  did  not  pay.    Could  the  promise  be  enforced? 

60.  Samuels  employs  Lynch  to  work  for  him  for  the  period  of  one 
year  from  the  coming  March.  Must  this  contract  be  in  writing  to  be 
enforceable  ? 

61.  If  Samuels  employs  Lynch  to  work  during  the  life  of  Samuels, 
would  an  oral  contract  be  valid? 

62.  Roberts  enters  into  an  oral  contract  with  Archer  whereby  the 
latter  is  to  do  a  job  of  interior  decorating  and  complete  the  work  within 
fifteen  months.  Archer  works  five  months  and  then  is  discharged  by 
Roberts,  who  claims  that  the  contract  is  void  under  the  Statute  of  Frauds. 
Can  Archer  recover  on  this  contract?     Explain. 

63.  Larson  wrote  to  Moore,  "I  will  sell  100  acres  from  my  Hartley 
tract  for  $200  per  acre."  Moore  replied  by  letter,  "I  will  buy  100  acres 
at  the  price  you  name."    Is  there  a  contract?     Explain. 

64.  Hustis  sold  his  drug  business  to  Andrews  for  $5000  and  agreed  not 
to  start  in  the  drug  business  again  in  the  same  city.  Six  months  later 
Hustis  bought  out  the  City  Drug  Company  and  started  in  business  again. 
What  are  Andrews's  legal  rights? 

65.  Baldwin,  a  grain  buyer,  called  on  Wilson  while  the  latter  was 
preparing  a  field  in  which  he  expected  to  sow  wheat.  Baldwin  offered  Wil- 
son $500  for  the  crop  when  it  should  be  harvested  and  Wilson  accepted^ 
both  parties  signing  a  contract  to  this  effect.  Baldwin  refused  to  fulfill  his 
contract.     Is  he  bound?    Explain. 


82  CONTRACTS 

66.  Gage  sold  Stone  his  express  business,  including  equipment  and  good 
will.  He  represented  to  Stone  that  there  were  15  customers  who  paid  $25 
per  month  each  and  the  business  was  earning  $5000  a  year.  Stone  dis- 
covered that  these  representations  were  false.     What  are  his  rights? 

67.  Emerson  enters  into  a  contract  with  Foster,  who  agrees  to  build 
him  an  engine  and  boiler  and  install  it  in  his  flour  mill  in  complete  run- 
ning order  to  the  entire  satisfaction  of  Emerson.  Foster  does  the  work, 
and  the  plant  seems  to  run  satisfactorily;  but  Emerson  is  not  satisfied, 
says  he  does  not  want  it,  and  orders  Foster  to  take  it  out.  Expert  ma- 
chinists claim  that  the  work  is  done  in  a  satisfactory  manner.  Must  Em- 
erson accept  it,  or  has  he  the  right  to  reject  it  under  the  agreement? 

68.  Hawks  orders  a  suit  of  clothes  of  Blare,  his  tailor,  and  specifies 
that  he  will  not  take  them  unless  they  are  satisfactory  to  him,  he  being  the 
sole  judge.  The  suit,  as  far  as  any  third  party  could  determine,  is  a  good 
fit;  but  Hawks  says  he  does  not  want  it,  as  it  is  not  satisfactory  to  him. 
Can  he  refuse  to  accept  the  suit? 

69.  Darrow  agrees  with  Fisher  to  manufacture  and  deliver  1000  pairs 
of  shoes  in  90  days,  but  because  of  a  strike  in  Darrow's  factory  he  is  un- 
able to  fulfill  his  agreement.  Is  the  strike  which  renders  the  performance 
of  the  contract  practically  impossible  an  excuse  for  his  nonperformance? 

70.  If  in  the  above  case  Darrow's  agreement  to  furnish  the  shoes  to 
Fisher  had  stipulated  that  the  contract  was  subject  to  strikes,  etc.,  would 
he  have  been  liable  for  nonperformance? 

71.  Breden  employs  Heinrick  to  paint  his  house.  When  the  work  is 
partially  done  the  house  burns.  Does  this  excuse  Heinrick's  nonperformance 
of  his  contract,  and  can  Heinrick  recover  a  portion  of  his  pay? 

72.  Hall  gives  Wood  his  promissory  note,  payable  one  month  after 
date.  Wood  changes  the  note,  making  it  payable  twenty  days  after  date. 
What  effect  has  this  upon  the  instrument? 

73.  If  in  the  above  case  the  alteration  was  made  without  any  intention 
to  defraud,  could  Wood  recover  on  the  original  contract? 

74.  Young  employs  Burr  to  deliver  100  loads  of  stone  for  him  within 
30  days,  for  $100.  After  he  has  delivered  10  loads.  Burr,  within  3  days 
after  the  agreement  is  made,  throws  up  the  contract  and  says  that  he  will 
not  perform  any  further.  What  remedy  has  Young?  May  he  proceed  at 
once  with  his  remedy,  or  must  he  wait  until  the  30  days  have  expired? 

75.  In  the  above  case,  suppose  that  Burr,  after  dehvering  five  loads, 
refused  to  perform  further  until  he  received  his  pay  for  the  whole  con- 
tract.    Had  he  the  right? 


CASE  PROBLEMS  83 

76.  For  breach  of  the  contract  to  deliver  the  stone  in  problem  74, 
what  would  be  the  damages  that  would  be  allowed  for  the  injury?  That 
is,  by  what  rule  would  they  be  measured? 

77.  A  publisher  has  been  sending  his  magazine  to  you  every  month 
for  over  a  year.  You  never  subscribed  for  the  magazine  nor  have  you  ever 
received  a  bill  from  the  pubUsher.  Can  he  compel  you  to  pay  for  the 
magazine?     Explain. 

78.  An  Oregon  mill  owner  visited  a  Chicago  lumber  dealer  and  bar- 
gained to  sell  the  dealer  100,000  feet  of  lumber  which  was  piled  in  the 
mill  owner's  yard  ready  for  shipment.  Afterwards  it  was  found  that  the 
lumber  had  burned  before  the  contract  was  closed.  Was  there  a  contract? 
Explain. 

79.  A  son  of  a  well-to-do  business  man  was  taken  ill  while  away  from 
home.  A  family  who  knew  the  father  took  the  young  man  into  their  home 
and  cared  for  him  for  some  time.  When  he  returned  home  his  father  learned 
of  this  and  wrote  a  letter  to  the  family,  promising  to  pay  them  $50  per  week 
for  caring  for  his  son.    Later  he  refused  to  pay.    Is  he  liable? 

80.  Dibble  offered  to  sell  his  trucking  business  and  equipment  to 
Lawrence  for  $5600.  Lawrence  was  undecided  and  asked  for  an  option  for 
one  week  for  which  he  paid  $50.  In  the  meantime  Dibble  received  an  offer 
of  $6200  and  he  told  Lawrence  that  he  had  decided  not  to  sell  just  yet, 
intending  to  accept  the  other  offer  later.    What  course  is  open  to  Lawrence? 

81.  Graham  contracted  to  build  a  house  for  Bowers  for  $18,000.  When 
the  house  was  nearly  completed  Graham  told  Bowers  that  he  could  not 
finish  the  house  for  the  price  named  in  the  contract  and  that  it  would  cost 
$2000  more.  Bowers  agreed  to  pay  the  $2000  and  Graham  completed  the 
house  according  to  the  specifications.  In  settling  with  Graham,  Bowers 
paid  the  $18,000  but  refused  to  pay  the  $2000.     Can  Graham  collect?. 

82.  Myres,  whose  shop  had  been  robbed,  offered  and  paid  $25  to  a 
policeman  for  catching  the  thief.  Later  Myres  learned  that  the  policeman 
was  not  legally  entitled  to  it;  can  he  recover  the  $25?    Explain. 

83.  Hartman  Lumber  Co.,  Augusta,  Georgia,  sent  a  circular  letter  to 
Hartford  Builder's  Supply  Co.  as  follows: 

"A  break  in  the  lumber  market  makes  it  possible  for  us  to  offer  No.  i, 
Georgia  pine  lumber  in  any  dimension  at  $60  per  M  feet  f .o.b.  Augusta. ' ' 

The  Hartford  Builder's  Supply  Co.  wrote  at  once  that  they  would 
take  100,000  feet  of  various  dimensions  at  the  price  named  in  the  circular 
letter  which  they  received.  The  Hartman  Lumber  Co.  refused  to  make 
delivery.     Was  there  a  contract?     Explain. 


84  CONTRACTS 

84.  A  hotel  where  Demuth  and  his  wife  were  guests  was  destroyed  by 
fire.  Demuth  offered  $500  to  any  person  who  would  rescue  his  wife  from 
the  burning  buildmg.  Dodson  heard  the  offer  and  rescued  Mrs.  Demuth 
from  the  burning  building,  but  Demuth  refused  to  pay.  Can  Dodson  col- 
lect?   Explain. 

85.  Osborn,  who  has  been  adjudged  insane,  purchases  a  valuable  pic- 
ture from  Gordon  and  gives  his  note  for  $25,000  in  part  payment.  Dis- 
cuss the  rights  of  the  parties. 

86.  Mattis  entered  into  a  contract  with  a  member  of  the  legislature 
named  Horton,  agreeing  to  pay  him  $100  if  he  would  procure  the  passage 
of  a  certain  bill.  Horton  procured  the  passage  of  the  bill.  Could  he  col- 
lect the  $100? 

87.  Lamb  contracted  with  Morton  for  the  purchase  of  a  factory  site. 
When  the  time  came  to  execute  the  deed  Morton  refused  to  complete  the 
sale.     What  are  Lamb's  rights? 

88.  Darrow  owes  Lyman  $1000  on  a  promissory  note  which  has  run 
eight  years.  Lyman  was  absent  from  the  state  the  last  three  years  and 
when  sued  his  defense  was  that  the  note  had  outlawed  under  the  Statute 
of  Limitations.    How  would  the  case  be  decided? 

89.  Bepler  owed  Jerome  $150.  Howe,  a  friend  of  Bepler,  subsequently 
promised  to  pay  the  debt.  He  failed  to  do  so  and  Jerome  sues  him.  Can 
Jerome  recover?    Explain. 


SALES  OF  PERSONAL  PROPERTY 

I,  IN   GENERAL 

Sales  of  Goods  Act.  —  The  law  as  to  the  sale  of  goods  has 
been  complicated  by  the  different  rules  in  force  in  the  different 
states  or  localities.  To  correct  this  condition  a  uniform  ''  Sales 
of  Goods  Act  "  has  been  adopted  in  a  number  of  states. 

Other  uniform  acts  which  are  allied  with  sales  are:  the 
Warehouse  Receipts .  Act  and  the  Bills  of  Lading  Act.  The 
Warehouse  Receipts  Act  has  been  adopted  in  all  the  forty-eight 
states.  The  Bills  of  Lading  Act  and  the  Uniform  Sales  Act  are 
being  adopted  generally. 

The  object  of  these  acts  is  to  combine  the  best  features  of 
the  laws  in  the  different  states. 

The  discussion  of  the  subject  of  sales  in  this  chapter  is  based 
on  the  Uniform  Sales  Act. 

Contract  to  Sell ;  Sale.  —  There  are  two  kinds  of  agreements 
to  be  considered  in  this  chapter,  namely  contracts  to  sell  and  sales. 
A  contract  to  sell  is  a  contract  whereby  the  seller  agrees  to 
transfer  the  property  in  the  goods  to  the  buyer  at  a  future  time 
for  a  consideration  called  the  price.  A  sale  is  an  agreement 
whereby  the  seller  transfers  the  property  in  the  goods  to  the 
buyer  for  a  consideration  called  the  price.  Both  are  contracts 
and  subject  to  all  the  requirements  of  a  valid  contract.  The 
parties  must  be  competent  to  enter  into  a  binding  contract.  There 
must  be  mutual  assent  and  there  must  be  a  consideration.  If 
there  is  an  absence  of  consideration,  the  transfer  is  a  gift.  The 
price  or  consideration  must  be  paid  or  promised  in  money.  This 
distinguishes  sale  from  barter. 

Barter.  —  A  barter  is  the  exchange  of  one  article  of  personal 
property  for  another.  The  same  rules  apply  to  a  barter  as  to  a 
sale,  and  we  can  consider  that  the  law  applicable  to  a  case  of 
barter  is  practically  the  same  as  that  explained  in  this  chapter 
on  sales.  It  seems,  however,  that  the  power  or  authority  vested 
in  an  agent  to  sell  does  not  give  him  authority  to  barter. 

•     8s 


86  SALES  OF  PERSONAL  PROPERTY 

Grey  appointed  Haskel  as  agent  to  sell  mining  stock.  Haskel  traded 
50  shares  of  stock  for  an  automobile.  Haskel  did  not  have  this  right  and 
Grey  would  not  have  to  accept  the  automobile,  as  authority  to  sell  does 
not  give  authority  to  barter. 

Delivery  and  Payment.  —  To  complete  the  sale  it  is  neces- 
sary for  the  seller  to  deliver  the  goods  and  for  the  purchaser  to 
pay  for  them,  and  unless  there  is  an  express  agreement  to  the 
contrary  these  acts  are  concurrent.  Delivery  in  this  sense  does 
not  necessarily  mean  the  passing  of  the  article  itself,  but  rather 
the  passing  of  the  ownership  or  title.  That  is  to  say,  the  delivery 
need  not  be  actual;  it  may  be  constructive.  It  is  actual  when 
the  article  itself  is  handed  over.  It  is  constructive  when  a  bill 
of  sale  or  a  receipt  is  handed  over  instead. 

Transfer  of  the  Right  of  Property.  —  There  must  be  a  trans- 
fer of  the  right  of  property,  that  is,  a  transfer  of  the  absolute 
property  in  the  thing  sold,  in  order  to  constitute  a  sale.  This 
^'  absolute  property  "  is  a  term  used  to  distinguish  it  from  a 
special  property  or  right  in  personal  property.  For  instance, 
when  property  is  pledged,  the  special  property  passes  to  the 
pledgee  and  the  general  title  remains  in  the  owner.  The  transfer 
of  a  special  property  in  a  chattel  constitutes  bailment  and  will 
be  considered  in  another  chapter. 

Morton  deposited  $1000  worth  of  bonds  with  his  banker  to  secure  a 
loan  of  $1000,  This  is  a  pledge  to  secure  a  debt  and  not  a  sale.  When 
Morton  pays  the  debt  the  bank  will  return  the  bonds. 

Edwards  delivered  500  bales  of  cotton  to  a  buyer  who  agreed  to  store 
them  for  three  months  and  within  this  time  to  buy  them  at  the  market 
price  or  to  return  them  as  Edwards  may  elect.  Inasmuch  as  this  contract 
provides  for  the  return  of  the  same  cotton  that  was  delivered  it  is  one  of 
bailment  and  not  of  sale. 

Sale  and  Bailment.  -7  The  rule  is  that  if  the  identical  thing 

is  to  be  returned,  even  though  in  a  different  form,  as  wheat 

ground  into  flour,  it  is  a  bailment;    but  if  the  identical  thing 

is  not  to  be  returned,  the  general  rule  is  that  it  is  a  barter  or  a 

sale. 

The  court  has  ruled:  "Where  logs  are  delivered  to  be  sawed  into 
boards,  or  leather  to  be  made  into  shoes,  rags  into  paper,  olives  into  oil, 
grapes  into  wine,  wheat  into  flour,  if  the  product  of  the  identical  articles 
delivered  is  to  be  returned  to  the  original  owner  in  a  new  form,  it  is  said 
to  be  a  bailment,  and  the  title  never  vests  in  the  manufacturer.  If,  on  the 
other  hand,  the  manufacturer  is  not  bound  to  return  the  same  wheat  or 


PARTIES  TO  A  SALE  87 

flour  or  paper,  but  may  deliver  any  other  of  equal  value,  it  is  said  to  be  a 
sale  or  a  loan,  and  the  title  to  the  thing  delivered  vests  in  the  manufac- 
turer."—  Powder  Co.  v.  Biirkhardt,  97  U.  S.  no. 

The  importance  of  the  distinction  is  realized  when  we  per- 
ceive that  if  it  is  a  bailment  the  title  does  not  pass  from  the 
original  owner  by  the  delivery,  but  if  the  transaction  constitutes 
a  sale,  the  title  passes.  The  question  often  arises  when  the 
stock  or  material  delivered  is  destroyed  by  fire,  or  otherwise, 
and  it  is  required  to  be  determined  upon  whom  the  loss  shall 
fall.  An  exception  to  the  rule  is  the  case  of  a  warehouseman 
who  receives  grain  and  mixes  it  with  like  grain  in  the  same 
storage.  Here  there  is  evidently  no  intention  to  return  the 
identical  grain,  but  some  of  the  same  kind;  still  some  cases 
hold  that  this  transaction  is  one  of  bailment  in  which  title  does 
not  pass,  but  others  follow  the  general  rule  and  hold  it  a  sale 
under  which  the  title  passes  to  the  warehouseman. 

QUESTIONS 

1.  Why  has  the  uniform  "  Sales  of  Goods  Act  "  been  adopted  in  a 
niunber  of  states? 

2.  Define  a  sale  and  a  contract  to  sell  and  state  the  difference  between 
them. 

3.  What  contract  requirements  apply  to  sales? 

4.  Does  an  agent  who  is  appointed  to  sell  have  authority  to  barter? 

5.  What  constitutes  a  complete  sale? 

6.  What  is  the  difference  between  a  bailment  and  a  sale?     Between  a 
sale  and  a  gift?    Between  a  sale  and  a  barter? 

7.  Does  an  inadequate  price  affect  the  agreement  to  sell? 

8.  When  is  delivery  said  to  be  actual?     When  constructive? 

9.  Why  is  it  important  to  determine  just  when  the  title  to  the  prop- 
erty is  transferred? 

2.   PARTIES  TO  A  SALE 

Seller  and  Purchaser.  —  The  parties  to  a  sale  are  the  seller 
or  vendor  and  the  purchaser  or  vendee.  The  general  rule  is 
that  no  man  can  sell  goods  and  convey  a  valid  title  unless  he  is 
the  owner  or  his  duly  authorized  agent.  Possession  is  not  an 
essential  to  the  right  to  sell,  ownership  being  enough,  and  the 
rightful  owner  can  sell  what  is  wrongfully  held  by  another. 


88  SALES  OF  PERSONAL  PROPERTY 

Webber,  while  in  possession  of  a  delivery  wagon  belonging  to  Davis, 
sold  it  to  Mann  for  a  good  price.  In  this  transaction  Mann  gets  no  title  to 
the  wagon  and  does  not  become  the  owner.  Davis  can  demand  the  return 
of  the  wagon  and  Mann  will  have  to  look  to  Webber  for  the  return  of  the 
money  paid. 

Seller  must  have  Good  Title.  —  The  principle  of  a  holder  in 
good  faith  which  is  discussed  under  the  negotiable  instrument 
law  does  not  apply  in  the  sale  of  personal  property,  the  general 
rule  being  that  one  cannot  give  a  better  title  than  he  himself 
has. 

Bennett  &  Co.  had  a  quantity  of  cotton  seed  hulls  in  storage  with  one 
Johnson  as  warehouseman.  Brooks  purchased  them  from  Johnson.  It 
was  held  that  Brooks  acquired  no  better  title  than  Johnson  had,  although 
he  purchased  the  goods  in  good  faith  and  for  a  valuable  consideration,  and 
Bennett  &  Co.  recovered  the  value  of  the  hulls. 

—  Bennett  6"  Co.  v.  Brooks,  146  Ala.  490. 

When  a  person  has  acquired  goods  by  fraud  or  trick  from  the 
true  owner,  he  has  a  voidable  title.  If  he  transfers  the  goods 
for  value,  to  a  bona  fide  purchaser  who  has  no  knowledge  of 
the  fraud,  such  purchaser  is  allowed  to  retain  the  goods  against 
the  original  owner,  on  the  principle  that  where  one  of  two  inno- 
cent parties  must  suffer  through  fraud,  the  loss  should  fall  on 
the  one  who  made  the  fraud  possible. 

Truxton  had  delivered  to  one  Morrow  a  large  quantity  of  tin  cans  by 
reason  of  false  and  fraudulent  misrepresentations  made  to  him  by  said 
Morrow.  While  the  cans  were  in  Morrow's  possession  they  were  levied 
upon  by  a  sheriff,  representing  bona  fide  creditors  of  Morrow.  In  a  suit 
to  recover  the  cans  it  was  held  that  Morrow  had  a  voidable  title;  that  the 
sheriff  stood  in  the  same  position  as  the  creditors;  that  they,  having  taken 
the  cans  in  good  faith  and  for  a  valuable  consideration,  without  knowl- 
edge of  the  fraud,  had  acquired  a  good  title  to  the  property  as  against  the 
original  seller;  and  that  Truxton  could  not  recover  the  cans. 

—  Truxton  v.  Fait  b°  Slagle  Co.,  17  Del.  493. 

The  distinction  between  the  last  two  cases  is  that  Johnson 
had  no  title  at  all,  and  so  could  convey  none,  whereas  Morrow 
had  a  voidable  title  which  became  a  good  title  on  being  trans- 
ferred to  a  bona  fide  creditor  or  purchaser. 

However  innocent,  therefore,  the  person  may  be  who  buys 
property  from  one  not  the  owner,  he  obtains  no  title  whatever, 
except  in  a  few  special  cases,  as,  for  instance,  the  one  just  men- 
tioned, and  in  the  case  of  negotiable  instruments.     It  follows 


PARTIES  TO  A  SALE  89 

then  that  a  person  buying  goods  that  were  either  lost  or  stolen 
has  no  claims  on  them  as  against  the  true  owner. 

An  auctioneer  who  sells  stolen  goods  is  liable  to  the  owner,  notwith- 
standing that  the  goods  were  sold  and  the  proceeds  turned  over  to  the 
thief  without  knowledge  that  they  were  stolen. 

—  Hofman  v.  Carow,  20  Wend.  (N.  Y.)  21. 

A  thief  acquires  no  title  and  can  convey  none,  and  no  matter 
how  many  sales  or  transfers  of  the  property  there  may  have 
been  after  the  thief  disposed  of  it  before  it  came  into  the  posses- 
sion of  the  holder,  the  true  owner  can  recover.  It  makes  no 
difference  that  the  purchase  was  made  in  good  faith  and  for 
full  value. 

Breckenridge  brought  an  action  for  the  value  of  wheat  which  his  hired 
man  had  stolen  and  sold  to  McAfee.  Held,  that  a  thief  acquires  no  title 
to  property  stolen  and  can  confer  none  on  a  person  to  whom  he  sells  the 
same.  And  such  person  is  liable  to  the  owner  for  the  value  of  such  goods 
without  regard  to  his  innocence  or  good  faith  in  making  the  purchase. 

—  Breckenridge  v.  McAfee,  54  Ind.  141. 

Pledgee  may  Sell.  —  An  exception  to  the  rule  that  a  person 
not  the  owner  cannot  sell  personal  property  is  the  case  of  a 
pledgee,  or  one  with  whom  the  chattels  are  left  as  security  for 
money  loaned,  as  he  can  sell  after  default  in  payment  by  the 
owner.  So  also  the  master  of  a  vessel  can  sell  the  cargo  in 
cases  of  absolute  necessity,  but  actual  necessity  must  exist  or 
the  purchaser  gets  no  title. 

Factor  may  Sell.  —  A  factor  or  commission  merchant  is  a 
person  to  whom  goods  are  shipped  or  consigned  for  the  purpose 
of  sale.  A  sale  made  by  him  conveys  a  good  title  and  binds  the 
original  owner  under  statutes  passed  in  most  of  the  states,  even 
though  he  goes  beyond  his  authority  and  sells  when  he  is  not 
authorized  to  do  so  by  the  owner;  but  the  factor  or  commission 
merchant  must  have  actual  possession  or  he  will  not  give  a  good 
title  if  he  exceeds  his  authority.  This  statute  is  limited  to 
mercantile  transactions  and  applies  only  to  factors  or  com- 
mission merchants. 

If  the  owner  of  goods  trusts  the  possession  of  them  to  an- 
other, thereby  enabling  the  other  party  to  hold  himself  out  to  the 
world  as  having  not  only  the  possession  but  also  the  ownership 
of  the  goods,  a  sale  by  such  party  to  a  person  without  notice 


go  SALES  OF  PERSONAL  PROPERTY 

who  acted  upon  the  strength  of  such  apparent  ownership  will 
bind  the  true  owner,  if  the  person  having  possession  is  one  who 
from  the  nature  of  his  employment  might  ordinarily  be  taken 
to  have  the  right  to  sell. 

Roberts,  a  truckman,  hired  a  truck  from  Bartow  for  one  year.  The 
agreement  was  that  Roberts  should  be  allowed  to  paint  his  name  on  the 
truck  and  use  it  as  his  own.  During  the  year  Roberts  sold  his  business  and 
entire  equipment  including  the  hired  truck  to  D arrow.  As  the  owner  of 
the  truck  in  question  allowed  Roberts  to  paint  his  name  on  the  truck  and 
to  hold  himself  out  as  the  owner,  the  purchaser  got  a  good  title  and  Bar- 
tow cannot  demand  the  return  of  the  truck.  Roberts  will  have  to  settle 
with  Bartow. 

As  we  have  learned  in  contracts  the  purchaser  must  be  a 
party  competent  to  contract  except  in  the  case  of  necessaries. 


QUESTIONS 

1.  What  are  the  parties  to  a  sale  called? 

2.  Who  has  a  right  to  offer  an  article  for  sale? 

3.  Under  what  conditions  can  a  buyer  get"  a  better  title  to  goods  than 
the  seller  has? 

4.  To  whom  do  stolen  goods  belong,  regardless  of  who  has  bought 
them? 

5.  Can  the  finder  of  lost  property  transfer  a  good  title  to  it? 

6.  Who  is  a  pledgee? 

7.  Under  what  conditions  has  a  pledgee  a  right  to  sell  pledged  goods? 

8.  When  has  the  master  of  a  vessel  a  right  to  sell  the  cargo  or  any 
portion  of  it?    Does  the  purchaser  get  a  good  title? 

9.  Who  is  a  factor? 

10.  Has  a  factor  a  right  to  sell  goods  consigned  to  him  and  accept  a 
note  in  payment  from  the  buyer? 

11.  Under  what  conditions  can  a  factor  give  a  good  title  to  goods 
consigned  to  him  to  sell? 


3.   THE   CONTRACT  OF   SALE 

Sales  Contracts.  —  In  the  contract  to  sell  the  title  has  not 
passed  to  the  purchaser.  It  is  simply  an  agreement  to  make  a 
transfer  at  some  future  time.  In  the  sale  the  title  has  passed 
and  the  sale  is  complete.  At  the  time  of  the  sale  the  subject 
matter  or  thing  sold  must  be  in  existence.  If  it  has  ceased  to 
exist,  the  sale  is  void.    That  is,  if  the  agreement  is  to  sell  certain 


THE  CONTRACT  OF  SALE  91 

goods,  which  have  been  destroyed  without  the  knowledge  of 
the  seller  at  the  time  the  agreement  is  made,  the  agreement  is 
void,  as  the  subject  matter  of  the  sale  had  ceased  to  exist  be- 
fore the  contract  of  sale  was  entered  into.  Similarly  if  there  is 
a  contract  to  sell  certain  goods,  and  they  are  destroyed  without 
the  fault  of  either  party  before  the  title  passes  to  the  buyer, 
the  contract  is  avoided. 

Norton  sold  621  bales  of  cotton,  marked  and  numbered  as  specified  in 
the  contract,  at  a  certain  price.  After  Nortoii  had  delivered  460  bales  the 
remaining  161  bales  were  destroyed  by  fire.  In  an  action  for  damages  the 
court  held  that  where  the  title  has  not  passed  to  the  buyer  and  the  property 
is  destroyed  without  the  fault  of  the  seller  so  that  delivery  is  impossible, 
the  seller  is  excused  from  delivery.  — Dexter  v.  Norton,  47  N.  Y.  62. 

Future  Goods.  —  The  subject  matter  of  a  contract  to  sell 
may  be  either  existing  goods,  owned  or  possessed  by  the  seller, 
or  future  goods,  to  be  manufactured  or  acquired  by  the  seller. 
At  common  law  the  natural  products  or  expected  increase  of 
what  was  already  owned,  constituted  a  special  class  of  future 
goods.  For  example,  growing  crops,  wool  to  be  clipped  from 
sheep,  cheese  to  be  produced  from  milk,  etc.,  were  said  to  have 
''  potential  existence  "  and  a  buyer  could  acquire  a  present  title 
to  them.  This  distinction  has  been  abolished  by  the  Uniform 
Sales  Act,  although  it  still  obtains  in  states  where  the  act  has  not 
been  adopted. 

It  was  held  that,  where  a  lease  of  a  farm  provided  that  all  crops  raised 
by  the  tenant  were  the  property  of  the  landlord  until  the  rent  was  paid, 
the  landlord  acquired  title  to  the  crops  on  account  of  their  potential 
existence,  and  could  hold  them  against  creditors  of  the  tenant. 

—  Smith  V.  Atkins,  18  Vt.  461. 

A  purported  sale  of  future  goods  operates  as  a  Contract  to 
sell  and  the  buyer  obtains  no  present  title,  but  if  the  seller  fails 
to  deliver,  the  buyer  has  a  right  of  action  for  damages. 

When  Title  Passes.  —  The  question  of  when  title  to  the 
goods  passes  from  the  seller  to  the  buyer  is  an  important  one, 
since  the  risk  of  loss  follows  the  title.  The  Uniform  Law  pro- 
vides that,  in  a  contract  to  sell  specific  goods,  the  title  passes 
when  the  parties  intend  it  to  be  transferred,  and  states  various 
rules  for  ascertaining  intention. 

I.   When    there    is    a    contract  to  sell  specific  goods  in  a 


92  SALES  OF  PERSONAL  PROPERTY 

deliverable  state,  title  passes  when  the  contract  is  made,  whether 
the  time  of  pa)niient,  or  the  time  of  delivery,  or  both,  be  post- 
poned. 

Baker  made  a  contract  with  McDonald  to  buy  thirty  stacks  of  hay 
then  in  McDonald's  field,  the  hay  to  be  measured  and  payment  and  de- 
livjery  to  be  made  later.  It  was  held  that  under  this  contract  title  passed 
to  McDonald  at  once.  —  Baker  v.  McDonald,  74  Nebr.  595. 

2.  Where  there  is  a  contract  to  sell  specific  goods  and  the 
seller  is  bound  to  do  something  to  the  goods  to  put  them  in  a 
deliverable  state,  title  does  not  pass  until  such  thing  be  done. 

Restad  contracted  to  sell  to  Engemoen  a  cow  and  a  steer,  Restad 
to  feed  and  fatten  them  and  deliver  them  about  two  months  later.  It  was 
held  that  title  did  not  pass  at  the  time  of  the  contract,  as  the  seller  had  to 
do  something  to  put  the  goods  in  deliverable  condition. 

—  Restad  v.  Engemoen,  65  Minn.  148. 

3.  When  goods  are  delivered  to  the  buyer  on  "  sale  or  re- 
turn "  the  title  passes  on  delivery,  but  the  buyer  may  transfer 
the  title  back  to  the  seller  by  returning  the  goods  within  the 
time  fixed,  or  within  a  reasonable  time. 

When  goods  are  delivered  to  the  buyer  on  approval,  or  on 
trial,  title  passes  when  the  buyer  signifies  his  approval,  or  re- 
tains the  goods,  without  rejecting  them,  beyond  the  time  fixed 
by  the  contract  or  beyond  a  reasonable  time. 

Mengel  bought  a  match  machine  from  Forsaith  Machine  Company  on 
approval.    He  retained  the  machine  for  a  year  and  declared  himself  dis- 
satisfied with  it.    It  was  held,  that  he  had  retained  the  machine  an  un- 
reasonable time,  that  title  had  passed,  and  that  he  must  pay  for  the  machine. 
—  Forsaith  Machine  Co.  v.  Mengel,  99  Mich.  280. 

4.  Whe"n  a  contract  is  made  to  sell  unascertained  or  future 
goods,  that  is,  goods  to  be  weighed  or  measured  or  goods  to  be 
made  by  the  seller,  the  buyer  becomes  the  owner  when  goods 
answering  the  description  in  the  contract  are  delivered  to  him 
or  to  a  carrier  for  transmission  to  him. 

Gratto  agreed  to  build  a  boat  of  a  certain  description  for  the  Yukon  River 
Steamboat  Co.,  who  was  to  pay  for  it  in  installments.  The  boat  was  built 
and  launched,  but  was  sold  by  Gratto  to  some  one  else.  It  was  held  that 
no  title  passed,  by  force  of  the  contract,  to  the  Yukon  River  Steamboat  Co., 
since  the  boat  had  not  been  delivered. 

—  Yukon  River  Steamboat  Co.  v.  Gratto,  136  Calif.  538. 


THE  CONTRACT  OF  SALE  93 

F.O.B.  and  C.O.D.  Shipments.  —  The  shipping  term  "  f.o.b. 
Chicago"  means  that  the  seller  must  deliver  the  goods  free  on 
board  in  Chicago,  either  transported  or  ready  to  be  transported. 
Where  the  goods  are  shipped  f.o.b.  destination,  the  title  does 
not  pass  to  the  buyer  until  they  reach  their  destination,  but 
where  they  are  shipped  f.o.b.  shipping  point,  the  title  passes  to 
the  buyer  as  soon  as  the  goods  are  delivered  to  the  common 
carrier. 

In  c.o.d.  (cash  on  delivery)  shipments,  whether  the  title 
passes  or  not  depends  upon  the  law  of  the  state  where  the  sale 
is  made.  This  term  under  the  Uniform  Sales  Act  indicates  that 
the  seller  intends  to  withhold  delivery  until  the  goods  are  paid  for, 
and  the  title  does  not  pass  until  payment  is  made  and  the  goods 
delivered. 

Mail  Orders.  —  In  case  of  an  order  by  mail  the  title  passes 
as  soon  as  the  seller  selects  the  goods  and  they  are  delivered  to 
the  common  carrier,  who  is  considered  the  agent  of  the  buyer. 
The  goods  must  be  according  to  the  contract;  otherwise  the 
buyer  may  reject  them.  This  general  rule  may  be  changed  by 
a  special  contract. 


QUESTIONS 

t 

1.  Is  the  physical  existence  of  the  subject  matter  necessary  to  the 
sale?    Explain. 

2.  In  the  case  of  destruction  of  the  subject  matter  in  a  sale,  who 
bears  the  loss? 

3.  In  a  contract  to  sell  who  bears  the  loss  if  the  goods  are  destroyed? 

4.  What  are  future  goods? 

5.  Can  future  goods  be  the  subject  matter  of  a  contract  to  sell? 

6.  Explain  "  potential  existence." 

7.  Mention  the  four  rules  of  the  Uniform  Law  which  relate  to  the 
passing  of  title  in  a  sale. 

8.  (a)  What  is  the  difference  between  a  sale  on  trial  and  a  sale  with 
the  privilege  of  returning  the  goods?  (b)  When  does  the  title  pass  in  the 
case  of  each? 

9.  Hinkel  took  a  vacuum  cleaner  home  with  him  on  a  ten-day  trial. 
He  neglected  to  return  it 'within  the  ten  days;  will  he  be  liable  for  the  price 
of  the  cleaner? 

10.  What  is  the  distinction  in  a  sale  between  ascertained  goods  and 
unascertained  goods? 


94  SALES  OF  PERSONAL  PROPERTY 

11.  Can  a  portion  of  a  larger  quantity  be  sold  and  title  passed  with- 
out separating  the  portion  sold  from  the  larger  portion?  Explain  by  giv- 
ing an  illustration. 

12.  When  does  the  title  pass  in  f.o.b.  shipments? 

13.  What  does  c.o.d.  indicate  under  the  Uniform  Sales  Act? 

14.  When  goods  are  ordered  by  mail,  when  does  the  title  pass  to  the 
buyer? 

4.  WRITTEN  CONTRACTS   OF   SALE 

Contracts  in  Writing.  —  Except  as  required  by  the  Statute  of 
Frauds,  an  oral  sales  contract  is  as  valid  as  a  written  contract. 
However,  in  any  important  purchase,  it  is  desirable  to  secure 
from  the  seller  a  bill  of  sale.  This  is  a  formal  instrument  in  writ- 
ing (see  form  in  Appendix)  by  which  the  seller  transfers  his 
interest  in  certain  specified  personal  property  to  the  buyer.  It 
certifies  that  the  buyer  is  the  owner  of  the  property  and  warrants 
the  title  thereto. 

The  Statute  of  Frauds.  —  Section  seventeen  of  the  English 
Statute  of  -Frauds  provides:  "No  contract  for  the  sale  of  goods, 
wares,  and  merchandise,  for  the  price  of  ten  pounds  sterling  or 
upward,  shall  be  allowed  to  be  good  except: 

I.  The  buyer  shall  accept  part  of  the  goods  sold,  and  actu- 
ally receive  the  same;  or 

.    2.    Give  somethftig  in  earnest  to  bind  the  bargain,  or  in  part 
payment;   or, 

3.  That  some  note  or  memorandum  in  writing  of  the  said 
bargain  be  made  and  signed  by  the  parties  to  be  charged  by  such 
contract  or  their  agents  thereunto  lawfully  authorized." 

As  will  be  seen,  the  statute  includes  most  of  the  articles  re- 
garded as  personal  property  under  the  terms,  j  goods,  wares, 
and  merchandise." 

The  English  statute  has  been  followed  in  most  states  in  this 
country;  but  the  amounts  vary  from  $10  to  $2500. 

Value  and  Price.  —  A  distinction  is  made  between  the  words 
"  in  value  "  and  ''  in  price."  "  In  value  "  is  used  where  the 
Uniform  Sales  Act  is  in  force,  and  "in  price"  was  used  in  the 
old  statutes. 

The  value  is  what  the  goods  are  worth  in  the  market;  the 
price  is  the  amount  agreed  upon  by  the  parties. 


WRITTEN  CONTRACTS  OF  SALE  95 

The  Note  or  Memorandum.  —  Under  the  Statute  of  Frauds 
the  note  or  memorandum  need  not  be  formal.  It  may  be  a 
sales  memorandum,  a  letter,  a  telegram,  or  it  may  consist  of 
several  papers,  passing  between  the  parties,  which  amount  to 
a  sales  contract.  The  memorandum  must  state  the  essential 
facts,  the  parties,  the  price,  if  agreed  upon,  and  specify  the 
articles  to  be  sold.  It  must  be  signed  by  the  party  to  be  charged 
or  by  his  authorized  agent. 

The  two  exceptions  are: 

1.  When  a  part  of  the  purchase  price  has  been  paid;    or 

2.  When  a  part  of  the  goods  has  been  delivered  and  ac- 
cepted. 

Under  the  Uniform  Sales  Act  the  payment  may  be  made  at 
any  time;    under  the  common  law,  when  the  contract  is  made. 

It  was  held  that  a  written  memorandum  of  a  sale  of  goods  did  not 
satisfy  the  requirements  of  the  Statute  of  Frauds  when  it  omitted  to  state 
that  payment  was  to  be  "net  cash  on  delivery  f.o.b.  Baltimore"  which  was 
one  of  the  terms  of  the  contract.  —  Fisher  v.  Andrews,  94  Md.  46. 

Part  Payment.  —  Part  payment  makes  the  contract  good 
and  enforceable,  and  the  parties  concerned  will  have  to  complete 
the  contract  or  suffer  damages.  The  amount  paid  may  either 
be  a  part  of  the  price  or  "  earnest  "  given  or  paid  to  "  bind  the 
bargain."  Strictly  speaking,  this  should  be  in  addition  to  the 
price,  but  in  most  cases  the  payment  is  allowed  to  apply  on 
the  purchase  price.  In  England  the  amount  paid  as  "  earnest  " 
is  no  part  of  the  purchase  price.    The  amount  is  not  material. 

Part  Delivery.  —  The  contract  is  enforceable  where  the  buyer 
has  received  and  actually  accepted  part  of  the  goods.  That  is, 
the  buyer  m  1st  take  possession  of  the  goods  and  indicate  his 
decision  to  become  the  owner.  This  may  be  done  by  words  or 
by  conduct. 

'Tart  of  the  goods"  must  be  taken  from  the  actual  goods 
to  be  delivered.  Samples  or  specimens,  as  such,  are  not  con- 
sidered "part  of  the  goods." 

Other  Exceptions.  —  When  the  amount  of  the  contract  is 
less  than  the  minimum  established  by  law  in  the  state,  the 
contract  need  not  be  in  writing.  Suit  could  be  brought  on  an 
oral  contract  and  proof  would  be  all  that  would  be  necessary 


96         SALES  OF  PERSONAL  PROPERTY 

to  enforce  it,  but  oral  contracts  are  hard  to  prove.  But  when 
there  are  a  number  of  articles  each  of  which  is  valued  less  than 
the  minimum  amount  established  by  law,  the  contract  must  be  in 
writing  if  the  value  of  all  the  articles  together  is  greater  than 
that  amount. 

When  a  contract  of  sale  above  the  minimum  value  has  been 
executed,  even  though  it  was  not  in  writing,  the  sale  stands. 

Work  or  Service  Provisions.  —  When  the  contract  is  es- 
sentially one  for  work,  labor,  or  services,  although  a  transfer  of 
personal  property  is  included,  the  contract  may  be  oral. 

Hayes  placed  an  order  with  a  machine  shop  for  an  automobile  part 
which  had  to  be  made  to  fit  a  certain  car  that  Hayes  owned.  This  order 
was  for  more  than  the  minimum  amount  specified  in  the  statute,  but  as 
it  chiefly  involved  work  and  skill  it  did  not  come  under  the  statute,  and  no 
written  contract  was  necessary. 

Numerous  tests  were  adopted  by  different  courts  to  settle 
this  question.  The  provision  of  the  uniform  "  Sales  of  Goods 
Act  "  is  that  the  Statute  of  Frauds  applies  to  all  contracts  or 
sales  of  goods  ''  notwithstanding  that  the  goods  may  be  intended 
to  be  delivered  at  some  future  time,  or  may  not  at  the  time  of 
such  contract  or  sale  be  actually  made,  procured,  or  provided, 
or  fit  or  ready  for  delivery,  or  some  act  may  be  requisite  for  the 
making  or  completing  thereof,  or  rendering  the  same  fit  for 
delivery;  but  if  the  goods  are  to  be  manufactured  by  the  seller 
especially  for  the  buyer  and  are  not  suitable  for  sale  to  others 
in  the  ordinary  course  of  the  seller's  business,  the  provisions  of 
this  section  shall  not  apply." 

The  fact  that  the  goods  are  not  in  existence,  or  that  they  are 
to  be  made  or  prepared  by  the  seller,  is  not  important.  The 
real  test  is  the  one  given  in  the  preceding  paragraph. 

Rules  often  Referred  to.  — The  New  York  rule,  before  New  York 
state  adopted  the  Uniform  Sales  Act,  provided  that  if  any  work  was  to  be 
performed  on  the  article  to  put  it  in  shape  for  delivery,  the  contract  was  not 
a  sale  but  a  contract  for  work  and  services. 

Under  the  English  rule  if  the  contract  would  result  in  the  transfer  of  a 
chattel,  the  contract  is  one  of  sale,  even  though  work  and  services  were 
involved. 

The  Massachusetts  rule,  before  Massachusetts  adopted  the  Uniform 
Sales  Act,  provided  that  if  the  contract  is  for  articles  in  existence  or  the  kind 


CONDITIONAL  SALE  97 

the  seller  makes  in  the  ordinary  course  of  his  business,  even  though  not  at 
the  time  in  existence,  it  is  within  the  statute;  but  if  it  is  for  articles  to  be 
manufactured  especially  for  the  purchaser  and  not  for  the  general  market, 
it  is  not. 

Any  of  these  rules  may  apply  in  states  which  have  not  adopted  the 
Uniform  Sales  Act. 


QUESTIONS 

1.  What  is  a  bill  of  sale? 

2.  What  distinction  is  made  between  "  in  value  "  and  "  in  price  "  ? 

3.  What  are  the  provisions  of  the  seventeenth  section  of  the  English 
Statute  of  Frauds? 

4.  How  does  the  statute  of  your  state  differ  from  the  English  statute? 

5.  What  will  constitute  a  sufficient  note  or  memorandum  of  sale 
under  the  Statute  of  Frauds? 

6.  Explain  the  meaning  of  "  earnest." 

7.  What  are  the  rules  governing  part  payment?     Under  the  Uniform 
Sales  Act  when  may  part  p^ments  be  made? 

8.  What  are  the  rules  governing  part  delivery? 

9.  Mention  a  sales  contract  which  would  have  to  be  in  writing  to  be 
enforceable,  and  one  -which  would  not  have  to  be  in  writing. 

10.  What  are  the  "  work  or  service  "  provisions  as  applied  to  sales 
contracts? 

11.  Hensel  ordered  a  suit  of  clothes  to  cost  $75.  Will  this  contract 
have  to  be  in  writing  to  be  binding? 

12.  The  suit  is  not  satisfactory  to  Hensel;  Will  he  have  to  take  it 
(a)  if  the  contract  is  in  writing,  (b)  if  the  contract  is  not  in  writing? 

13.  If  an  article  valued  at  more  than  the  minimum  amount  under  the 
statute  is  sold,  but  the  seller  has  to  get  new  parts  and  paint  it  before  de- 
livery, will  the  contract  have  to  be  in  writing? 

14.  How  is  it  possible,  where  a  sales  contract  comes  under  the  Statute 
of  Frauds,  to  avoid  using  the  written  form? 

5.   CONDITIONAL   SALE 

Installment  Sales.  —  It  is  common  in  business  for  certain 
articles  such  as  pianos,  sewing  machines,  furniture,  etc.  to  be 
sold  conditionally,  the  title  to  remain  in  the  vendor  until  the 
purchase  price  shall  be  fully  paid.  This  mode  of  making  sales 
is  employed  by  all  installment  dealers  who  sell  goods  on  weekly 
or  monthly  payments..  The  payment  of  the  last  installment  is 
a  condition  precedent  to  the  passing  of  the  title  to  the  purchaser. 


gS  SALES  OF  PERSONAL  PROPERTY 

As  between  the  original  parties,  a  conditional  sale  is  valid  and 
the  title  does  not  pass  until  the  condition  is  fulfilled,  even  though 
the  property  is  given  into  the  possession  of  the  vendee  at  the 
time  the  parties  enter  into  the  contract. 

Action  was  brought  to  recover  an  engine,  sawmill,  and  lot  of  tools  sold  by 
McRea  under  a  contract  of  sale  which  expressly  agreed  that  the  title  should 
remain  in  the  vendor  until  the  purchase  price  was  fully  paid.  Payment 
was  never  fully  made.  It  was  held  that  the  title  did  not  pass  to  the  pur- 
chaser until  the  payment  was  made.  The  contract  constituted  a  conditional 
sale  and  the  vendor  could  recover  the  property. 

—  McRea  v.  Merrifield,  48  Ark.  160. 

But  the  opportunity  for  fraud  is  great  if  the  party  in  posses- 
sion, that  is,  the  vendee,  is  enabled  to  present  every  appearance 
of  ownership  when  the  title  does  not  rest  in  him.  A  third  party 
who  purchases  of  him  without  notice  of  the  title  in  the  vendor 
may  easily  be  imposed  upon  and  defrauded.  Still  the  general 
rule  is  that  in  the  absence  of  any  fraucf  in  the  conditional  sale 
the  condition  is  valid  against  third  persons.  The  seller  can  give 
no  better  title  than  he  possesses. 

A  mule  was  sold  conditionally  by  Mcintosh  to  a  third  party,  the  title 
to  remain  in  the  vendor  until  the  animal  was  paid  for.  The  muie  was 
atterwards  sold  by  this  third  party  to  Beam,  who  bought  it  in  good  faith 
for  a  valuable  consideration  and  without  notice  of  the  conditional  sale. 
Held,  that  Mcintosh  could  recover.  The  purchaser  acquired  no  better 
title  than  the  seller  had.  —  Mcintosh  v.  Beam,  47  Ark.  363. 

Filing  Conditional  Contracts.  —  Statutes  have  been  passed 
in  many  of  the  states  requiring  every  such  contract  of  sale  to 
be  filed,  and  if  it  is  not,  the  condition  is  void  as  to  persons  who 
buy  of  the  party  in  possession  without  notice  of  the  conditional 
contract. 

Penland  sold  a  horse  to  one  Bleckley  for  $30,  but  Bleckley  not  having 
the  money  it  was  agreed  that  he  should  take  the  horse,  but  that  title  should 
remain  in  Penland  until  paid  for.  The  horse  was  taken  from  Bleckley  by 
Cathey  levying  under  a  judgment.  It  was  held  that  the  attempted  reserva- 
tion of  title  in  Penland  was  void  since  the  contract,  not  being  in  writing  and 
recorded,  as  required  by  statute,  was  invalid  against  third  parties. 

—  Penland  v.  Cathey,  no  Ga.  431. 

In  some  states  many  formalities  are  required  in  the  filing  of  the 
sales  contract,  while  in  a  few  states  the  sales  contract  as  filed  is 
only  required  to  be  signed  by  the  purchaser.    In  some  states  an 


CONDITIONAL  SALE  99 

affidavit  by  the  seller,  setting  forth  the  nature  of  the  sale,  is 
required.  Other  states  require  the  contract  to  be  witnessed. 
Most  of  the  states  require  the  contract  to  be  acknowledged  by 
the  buyer. 

In  some  states,  however,  the  vendor's  title  in  a  conditional 
sale  is  good  against  third  parties  without  filing. 

In  any  particular  case,  it  will  be  necessary  to  consult  the 
state  law. 

Sale  on  Trial.  —  Sale  on  trial  or  on  approval  is  another  form 
of  conditional  sale  as  explained  on  page  92. 

Chattel  Mortgage.  —  The  chattel  mortgage  is  a  special  form 
of  conditional  sale.  It  consists  of  the  sale  of  certain  chattels  or 
goods,  subject  to  defeat  upon  the  payment  by  the  vendor  or 
mortgagor  of  a  certain  debt  or  the  performance  of  a  certain 
obligation.  It  differs  from  an  ordinary  conditional  sale  in  that 
the  title  passes  to  the  purchaser  at  once,  but  it  is  liable  to  be 
defeated  upon  the  fulfilling  of  certain  conditions,  while  in  an 
ordinary  conditional  sale  the  title  does  not  pass  until  the  condi- 
tions are  fulfilled. 

A  chattel  mortgage  is  frequently  employed  by  a  borrower  of 
money  as  security  for  the  loan.  The  goods  may  remain  in  the 
possession  of  either  party,  but  if  they  are  allowed  to  remain  in  the 
mortgagor's  possession,  the  statutes  of  nearly  all  of  the  states 
require  that  the  mortgage  shall  be  filed  with  some  public  officer, 
where  it  will  be  open  to  the  inspection  of  the  public,  as  a  protec- 
tion to  third  parties  who  might  otherwise  buy  the  mortgaged 
property  in  good  faith  and  without  notice  of  the  mortgage.  As 
between  the  parties  themselves  the  mortgage  is  vaUd  without 
being  filed. 

Foreclosure.  —  After  default  in  the  payment  of  the  mortgage, 
the  mortgagee  must  foreclose  the  mortgage  in  order  to  cut  off 
all  of  the  rights  of  the  mortgagor.  The  procedure  differs  under 
the  statutes  of  the  different  states.  It  consists  in  giving  notice 
to  the  mortgagor  and  selling  the  property  at  pubUc  sale.  The 
mortgage  itself  may  contain  provisions  for  the  foreclosure. 
The  mortgagor  is  usually  allowed  the  time  until  the  date  of  the 
sale  in  which  to  pay  the  amount  due  and  redeem  the  property 
mortgaged. 


loo  SALES  OF  PERSONAL  PROPERTY 

The  Rule  as  to  Losses.  —  The  usual  rule  in  sales  is  that  the 
risk  of  loss  follows  the  title  to  the  goods,  and  in  some  states 
that  rule  is  applied  to  conditional  sales  and  in  case  of  destruction 
of  the  goods  the  loss  falls  on  the  vendor.  However,  in  most 
states  the  courts  hold  that  the  loss  falls  on  the  vendee,  because 
he  is  in  possession  of  the  goods  and  has  exclusive  control  of  them. 

QUESTIONS 

1.  Give  an  example  of  an  installment  sale. 

2.  Under  what  conditions  "does  the  title  pass  to  the  purchaser  in  an 
installment  sale? 

3.  (a)  Has  the  purchaser  of  goods  on  the  installment  plan  a  right  to 
sell  them?     (b)  Can  he  give  a  good  title  to  the  goods? 

4.  Can  a  merchant  who  has  purchased  goods  on  credit  sell  them  and 
transfer  a  good  title? 

5.  Wherein  do  conditions  differ  in  questions  3  and  4? 

6.  Why  is  it  important  to  require  that  conditional  contracts  be  filed? 

7.  Give  an  example  of  a  sale  where  there  is  a  change  of  possession  of 
the  goods  without  a  change  of  title. 

8.  What  is  a  chattel  mortgage?    What  purpose  does  it  serve? 

9.  What  right  has  the  mortgagee  in  case  the  mortg:.gor  fails  to  pay 
the  debt? 

10.  Who  is  responsible  if  the  property  is  destroyed  before  payments 
are  completed? 

11.  Mention  some  particulars  in  which  laws  on  conditional  sales 
differ.  / 

6.   WARRANTIES 

Classification.  —  We  have  seen  that  a  condition  in  a  contract 
of  sale  which  is  required  to  be  performed  before  the  contract  is 
completed  will  defeat  the  sale  if  it  is  not  carried  out.  Aside 
from  this  there  are  certain  warranties  which  are  collateral 
undertakings  on  the  part  of  the  seller  to  be  responsible  in  dam- 
ages if  certain  conditions  as  to  quality,  amount,  or  title  of  the 
article  are  not  as  represented.  The  warranty  is  a  separate  con- 
tract, and,  if  made  at  a  different  time  from  the  contract  of  sale, 
it  must  be  supported  by  a  separate  consideration.  If  made  at 
the  same  time,  the  consideration  of  the  sale  will  also  operate  as 
a  consideration  for  the  warranty. 

Mrs.  Green  purchased  a  coat  for  which  she  paid  a  good  price.  A  friend 
of  hers  told  her  it  would  fade,  and  she  took  it  back  to  the  merchant,  who 


WARRANTIES  \'\''^i>%i 

■'''•■''''•'■'■' 
warranted  the  coat  not  to  change  color.  The  merchant  is  not  bound  by 
this  warranty,  as  it  was  made  after  the  sale,  and  there  was  no  consideration. 
Had  the  merchant  warranted  the  coat  not  to  fade  at  the  time  the  sale 
was  made,  the  consideration  of  the  sale  would  have  been  consideration  for 
the  warranty. 

There  are  two  classes  of  warranty,  express  and  imp*lied. 

Express  Warranty. — -The  express  warranty,  as  its  title 
would  indicate,  is  an  express  undertaking  or  agreement  made  by 
the  seller.  No  special  form  of  words  is  necessary  to  create  a 
warranty.  Any  statement  framed  with  the  intention  of  making 
a  warranty  will  be  so  construed.  It  must  be  distinguished  from 
a  mere  expression  of  opinion  on  points  regarding  the  chattel,  of 
which  the  seller  has  no  special  knowledge  and  on  which  the 
buyer  may  be  expected  to  exercise  his  own  judgment.  A  war- 
ranty is  an  assertion  of  a  fact  of  which  the  buyer  is  ignorant. 

The  vendor,  in  selling  a  patent  right  in  a  ditching  machine,  exhibited 
the  letters  patent  and  the  model  and  stated  that  if  properly  constructed 
it  would  work  well.  It  was  claimed  that  it  was  properly  constructed  and 
did  not  work  well.  It  was  not  shown  that  the  vendor  had  ever  made  and 
used  a  machine  constructed  after  this  model  or  that  he  represented  that 
he  had  made  and  used  one.  The  court  held  that  the  statements  were  nothing 
more  than  mere  expressions  of  opinion,  which"  did  not  amount  to  a  war- 
ranty. —  Hunter  v.  McLaughlin,  43  Ind.  38. 

It  was  held  that  a  statement  by  a  piano  agent  that  the  instrument  is 
"well  made  and  will  stand  up  to  concert  pitch"  is  a  warranty,  it  being  a 
representation  of  fact.  —  Stroud  v.  Pierce,  6  Allen  (Mass.)  413. 

If  the  representation  is  a  warranty,  the  contract  will  not  be 
broken  if  the  representation  is  untrue,  but  an  action  for  damages 
will  arise.  If  it  is  a  mere  expression  of  opinion,  there  is  no  remedy 
if  it  turns  out  to  be  unfounded. 

A  general  warranty  is  held  not  to  include  defects  apparent 
on  simple  inspection  and  requiring  no  skill  to  discover  them, 
nor  defects  known  to  the  buyer. 

Morey  sold  Dean  a  horse  that  was  a  crihber.  Held,  that  he  was  not 
bound  to  disclose  this  fact  to  Dean,  as  the  horse  was  subject  to  the  inspec- 
tion of  the  buyer,  and  a  simple  examination  of  the  horse's  mouth  would  have 
shown  the  defect.  — Dean  v.  Morey,  2>2>  Iowa  120. 

Implied  Warranty.  —  Imphed  warranty  differs  from  express 
warranty  in  that  although  it  exists  in  the  contract  of  sale,  it 
is  not  mentioned  or  stated  in  express  words.  In  every  contract 
of  sale  there  is  an  imphed  warranty  that  the  seller  has  the  right 


i<y2  ,  ;;  -     •  /SALES  OF  PERSONAL  PROPERTY 


• 


to  sell  the  goods,  or  will  have  such  right  when  title  is  to  pass. 
At  common  law  this  warranty  of  title  was  not  implied  when  the 
seller  was  not  in  possession  of  the  goods  sold,  but  the  Uniform 
Sales  Act  seems  to  have  altered  the  common  law  in  this  respect. 

Nevels  sued  the  Kentucky  Lumber  Co.  for  damages  for  refusal  to 
accept  certain  logs  he  sold  to  them.  Nevels  had  bought  all  the  poplar 
timber  on  a  tract,  but  it  appeared  that  he  had  bought  from  a  man  who 
owned  only  an  undivided  one-fourth  of  the  tract,  and  so  he  did  not  have 
a  good  title  to  the  logs.  It  was  held  that  there  was  a  breach  of  implied 
warranty  of  title  and  the  Kentucky  Lumber  Co.  was  justified  in  refusing 
the  logs.  —  Nevels  v.  Kentucky  Lumber  Co.,  io8  Ky.  550. 

As  to  the  implied  warranty  of  quality,  we  find  the  maxim, 
caveat  emptor,  meaning  ^'Let  the  buyer  beware,"  to  be  the 
general  rule  of  law.  When  there  has  been  a  sale  of  specific 
goods  which  the  buyer  has  an  opportunity  to  inspect,  he  buys 
at  his  own  risk  as  to  quality,  unless  there  is  an  express  war- 
ranty. There  is  no  implied  warranty  of  the  quality.  The  vendor 
is  under  no  obligation  to  communicate  the  existence  of  even 
latent  defects  in  his  wares  unless,  by  act  or  impHcation,  he  repre- 
sents that  such  defects  do  not  exist. 

Harvey  sold  Frazier  some  hogs  which,  unknown  to  both  parties,  had 
a  disease  of  which  they  died  later.  Action  was  brought  on  the  implied  war- 
ranty of  soundness  of  the  hogs.  Held,  that  when  there  is  no  express  war- 
ranty and  no  fraud  in  the  sale  of  personal  property,  the  purchaser  takes 
the  risk  of  its  quality  and  condition.  —  Frazier  v.  Harvey,  34  Conn.  469. 

But  when  the  chattel  is  to  be  made  or  supplied  to  the  order 
of  the  purchaser,  there  is  an  implied  warranty  that  it  is  reason- 
ably fit  for  the  purpose  intended,  if  that  purpose  is  communi- 
cated to  the  seller. 

Held,  that  the  vendor  of  a  patent  churn,  being  himself  the  manufac- 
turer, and  contracting  to  furnish  the  purchaser  with  a  quantity  of  churns, 
must  be  held  to  have  warranted  that  they  were  useful  and  reasonably  suit- 
able for  the  intended  purpose;  and  if  they  proved  to  be  worthless,  there 
would  be  a  breach  of  the  implied  warranty  which  would  be  a  good  defense 
against  an  action  for  the  purchase  price.  —  Tahor  v.  Peters,  74  Ala.  90. 

If  the  sale  is  by  sample,  there  is  an  implied  warranty  that 
the  quality  of  the  bulk  is  equal  to  that  of  the  sample. 

Myer  sold  Wheeler  10  carloads  of  barley  like  sample,  to  be  delivered 
from  time  to  time.  Wheeler  had  never  seen  the  barley.  Held,  that  there 
was  a  warranty  that  the  barley  would  be  equal  to  the  sample. 

—  Myer  v.  Wheeler,  65  Iowa  390. 


WARRANTIES  .  103 

To  constitute  a  sale  by  sample  it  must  appear  that  the  con- 
tract of  the  parties  was  made  solely  with  reference  to  the  sample 
exhibited. 

The  court  held  that  the  sale  of  an  article  which  was  represented  to 
be  five  per  cent  better  than  the  sample  shown  was  not  a  sale  by  sample. 

—  Day  V.  Raguet,  14  Minn.  273. 

In  a  sale  by  description  there  is  an  implied  warranty  that 
the  goods  shall  be  salable,  aside  from  the  fact  that  a  condition 
precedent  to  the  sale  is  that  the  goods  shall  answer  the  de- 
scription. In  such  a  case,  the  buyer  having  no  opportunity  to 
inspect  the  goods,  the  rule  of  caveat  emptor  does  not  apply,  and 
the  buyer  has  a  right  to  expect  that  he  is  getting  a  salable  article 
answering  the  description  in  the  contract,  and  not  an  article 
that  is  worthless. 

Weiger  sold  Gould  oats  and  represented  them  to  be  a  good  grade  of 
white  oats,  such  as  he  was  purchasing  at  forty  cents.  Held,  that  Weiger 
must  deliver  salable  oats  and  cannot  deliver  wet,  dirty  oats. 

—  Weiger  v.  Gould,  86  III.  180". 

When  a  person  buys  of  a  manufacturer  an  article  made  for 
a  particular  purpose,  there  is  an  implied  warranty  that  it  is-  fit 
for  the  desired  purpose,  also  that  it  is  free  from  latent  defects, 
arising  from  the  process  of  manufacture  and  unknown  to  the 
purchaser,  which  render  it  unfit  for  the  purpose  intended. 

Niles  agreed  with  Rodgers  that  he  would  deliver  to  him  at  a  future  time 
three  steam  boilers  with  which  to  run  the  engines  in  his  roller  mill.  Held, 
that  there  was  an  implied  warranty  that  the  boilers  should  be  free  from  all 
such  defects  in  material  or  workmanship,  either  latent  or  otherwise,  as 
would  render  them  unfit  for  the  usual  purposes  of  such  boilers. 

—  Rodgers  v.  Niles,  11  Ohio  State  48. 

Conditions.  —  The  two  kinds  of  conditions  are  "  pure  con- 
dition "  and  ''  promissory  condition."  A  pure  condition  is  one 
over  which  neither  party  has  any  control.  For  example,  a 
contract  is  made  to  manufacture  trolley  cars  if  a  certain  fran- 
chise or  right  of  way  is  secured,  or  a  contract  is  made  to  buy 
goods  "  on  arrival."  The  parties  to  the  contract  would  not 
be  bound  unless  the  conditions  are  carried  out.  The  franchise 
may  not  be  secured,  or  the  goods  may  never  arrive. 

A  promissory  condition  in  a  sales  contract  is  a  statement  to 


I04  SALES  OF  PERSONAL  PROPERTY 

the  effect  that  the  goods  will  answer  a  certain  description,  or 
that  they  will  be  ready  for  deHvery  on  a  certain  date. 

Where  the  Uniform  Sales  Act  applies,  the  promissory  con- 
ditions only  are  treated  as  warranties. 


SECTION    ON   IMPLIED   WARRANTY   FROM    UNIFORM 
SALES   ACT 

Implied  Warranties  of  Title.  In  a  contract  to  sell  or  in  a  sale,  unless 
a  contrary  intention  appears,  there  are 

1.  An  implied  warranty  on  the  part  of  the  seller  that  in  case  of  a  sale 
he  has  a  right  to  sell  the  goods,  and  that  in  case  of  a  contract  to  sell  he  will 
have  a  right  to  sell  the  goods  at  the  time  when  the  property  is  to  pass; 

2.  An  implied  warranty  that  the  buyer  shall  have  and  enjoy  quiet 
possession  of  the  goods  as  against  any  lawful  claims  existing  at  the  time  of 
the  sale; 

3.  An  implied  warranty  that  the  goods  shall  be  free  at  the  time  of 
the  sale  from  any  charge  or  encumbrance  in  favor  of  any  third  person,  not 
declared  or  known  to  the  buyer  before  or  at  the  time  when  the  contract  or 
sale  is  made. 

4.  This  section  shall  not,  however,  be  held  to  render  liable  a  sheriff, 
auctioneer,  mortgagee,  or  other  person  professing  to  sell  by  virtue  of 
authority  in  fact  or  law  goods  in  which  a  third  person  has  a  legal  or 
equitable  interest. 

Implied  Warranty  in  Sale  by  Description.  When  there  is  a 
contract  to  sell  or  a  sale  of  goods  by  description,  there  is  an  implied  war- 
ranty that  the  goods  shall  correspond  with  the  description,  and  if  the  con- 
tract or  sale  be  by  sample,  as  well  as  by  description,  it  is  not  sufficient 
that  the  bulk  of  the  goods  corresponds  with  the  sample  if  the  goods  do  not 
also  correspond  with  the  description. 

Implied  Warranties  of  Quality.  Subject  to  the  provisions  of  this 
act,  of  any  statute  in  that  behalf,  there  is  no  implied  warranty  or  con- 
dition as  to  the  quality  or  fitness  for  any  particular  purpose  of  goods  sup- 
pHed  under  a  contract  to  sell  or  a  sale,  except  in  the  following  paragraphs 
I,  2,  5,  and  6. 

1.  Where  the  buyer,  expressly  or  by  implication,  makes  known  to 
the  seller  the  particular  purpose  for  which  the  goods  are  required  and  it 
appears  that  the  buyer  relies  on  the  seller's  skiU  or  judgment  (whether  he  be 
the  grower  or  manufacturer  or  not),  there  is  an  implied  warranty  that  the 
goods  shall  be  reasonably  fit  for  such  purpose. 

2.  Where  the  goods  are  bought  by  description  from  a  seller  who  deals 
in  goods  of  that  description  (whether  he  be  the  grower  or  manufacturer 
or  not),  there  is  an  implied  warranty  that  the  goods  shall  be  of  merchantable 
quality. 


REMEDIES  FOR  BREACH  105 

3.  If  the  buyer  has  examined  the  goods,  there  is  no  implied  warranty 
as  regards  defects  which  such  examination  ought  to  have  revealed. 

4.  In  the  case  of  a  contract  to  sell  or  a  sale  of  a  specified  article  under 
its  patent  or  other  trade  name,  there  is  no  implied  warranty  as  to  its  fit- 
ness for  any  particular  purpose. 

5.  An  implied  warranty  or  condition  as  to  quality  or  fitness  for  a 
particular  purpose  may  be  annexed  by  the  usage  of  trade. 

6.  An  express  warranty  or  condition  does  not  negative  a  warranty  or 
condition  implied  under  this  act  unless  inconsistent  therewith. 

QUESTIONS 

1.  What  is  a  warranty? 

2.  What  are  the  two  classes  of  warranty? 

3.  Is  a  warranty  made  after  the  sale  good? 

4.  What  is  an  express  warranty? 

5.  Distinguish  between  a  warranty  and  a  mere  expression  of  opinion. 

6.  In  case  of  breach  of  warranty  what  right  arises? 

7.  What  is  the  meaning  of  the  term  caveat  emptor? 

8.  Mention  a  case  where  caveat  emptor  applies. 

9;   Distinguish  between  an  express  warranty  and  an  implied  war- 
ranty. 

10.  Under  the  Uniform  Sales  Act  is  there  an  implied  warranty  of 
title  if  the  seller  is  not  in  possession  of  the  goods? 

11.  What  is  the  general  rule  as  to  the  implied  warranty  of  quality? 

12.  When  is  there  an  impUed  warranty  of  fitness  for  a  particular 
purpose? 

13.  What  is  the  implied  warranty  in  case  of  a  sale  by  sample? 

14.  What  is  necessary  to  constitute  a  sale  by  sample? 

15.  Hooker  ordered  a  casting  for  a  particular  machine;  what  is  the 
implied  warranty  on  the  part  of  the  seller? 

16.  In  case  of  a  sale  by  description,  what  is  the  implied  warranty? 

17.  Does  the  rule  of  caveat  emptor  apply  where  the  buyer  does  not 
have  an  opportunity  to  inspect  the  goods? 

18.  Why  is  it  desirable  to  secure  a  warranty? 

19.  If  a  buyer  relies  on  his  own  judgment,  will  statements  made  by 
the  seller  be  held  to  be  warranties? 

20.  What  is  the  difference  between  the  two  classes  of  conditions? 

21.  To  which  condition  does  the  Sales  Act  apply? 

7.   REMEDIES  FOR  BREACH 

Rights  of  Seller.  —  The  parties  may  not  fulfill  their  contract 
of  sale,  and  the  question  then  arises  as  to  what  are  their  respec- 
tive rights.    The  vendee  may  refuse  to  complete  the  contract  of 


io6  SALES  OF  PERSONAL  PROPERTY 

sale  by  declining  to  accept  the  goods,  or  after  accepting  and 
retaining  the  goods,  he  may  refuse  to  pay  the  purchase  price. 
In  case  the  goods  have  not  been  delivered  and  the  title  has 
not  passed  to  the  purchaser,  the  vendor  may  elect  to  avail 
himself  of  any  one  of  three  remedies. 

1.  He  may  resell  the  goods,  after  having  tendered  them  and 
been  refused,  and  recover  damages  for  the  loss,  if  any;  or, 

2.  He  may  store  the  goods  for  the  vendee  and  sue  for  the 
entire  purchase  price;  or, 

3.  He  may  keep  the  goods  and  sue  for  the  damages,  which 
will  be  the  difference  between  the  contract  price  and  the  market 
price  at  the  time  and  place  of  delivery. 

The  Uniform  Law  limits  the  right  to  store  the  goods  for  the 
buyer  and  recover  the  full  contract  price  to  cases  where  the 
goods  cannot  readily  be  sold  for  a  reasonable  price.  The  right 
of  resale  is  given  when  the  goods  are  of  a  perishable  nature,  or 
the  buyer  has  been  in  default  in  the  payment  of  the  price  an 
unreasonable  time.  It  is  not  essential  to  the  validity  of  a  re- 
sale that  the  seller  shall  give  the  buyer  notice  of  his  intention 
to  resell,  nor  of  the  time  and  place  of  the  resale,  but  the  seller 
is  bound  to  exercise  reasonable  care  and  judgment  in  making 
the  resale. 

If  the  title  and  possession  have  passed  to  the  purchaser,  the 
only  remedy  is  an  action  against  the  purchaser  for  the  contract 
price,  or  if  not  for  the  contract  price,  for  the  reasonable  value 
of  the  goods. 

Seller's  Lien.  —  While  the  seller  has  possession  or  control 
of  the  goods  which  have  not  been  paid  for,  he  has  what  is  known 
as  a  seller's  Hen  on  them;  that  is,  he  may  refuse  to  deliver  them 
until  he  is  paid,  unless  the  contract  of  sale  provides  otherwise. 
This  lien  is  lost  by  giving  up  possession  of  the  goods  and  the 
buyer  will  not  have  to  return  them,  even  though  he  does  not 
pay  for  them. 

Stoppage  in  Transitu.  —  The  seller  who  has  sold  goods  on 
credit  has  a  right  under  certain  conditions  to  stop  delivery  of 
the  goods  while  they  are  in  the  hands  of  the  common  carrier 
(express,  railroad,  or  steamship  company).  This  is  known  as 
the  right  of  stoppage  in  transitu. 


REMEDIES  FOR  BREACH  107 

Conditions  which  give  rise  to  the  right  of  stoppage  in  tran- 
situ are: 

1.  The  goods  must  have  been  sold  on  credit. 

2.  The  buyer  must  be  insolvent  at  the  time  the  delivery  of 
the  goods  is  stopped. 

3.  The  goods  must  be  in  the  hands  of  the  common  carrier 
at  the  time  the  right  of  stoppage  is  exercised. 

The  seller  exercises  this  right  by  notifying  the  common 
carrier  not  to  dehver  the  goods  to  the  buyer  or  his  agent. 

This  right  exists  when  the  purchaser  becomes  insolvent  after 
the  sale  or  was  insolvent  when  the  sale  was  made,  though  the 
fact  was  unknown  to  the  seller. 

The  right  of  stoppage  in  transitu  extends  not  only  to  the 
seller  himself  but  to  an  agent  who,  upon  the  order  of  his  princi- 
pal, has  purchased  goods  and  paid  for  them  with  his  own  money. 
So  also  a  third  person  who  advances  the  money  for  the  purchase 
and  takes  an  assignment  of  the  bill  of  lading  can  exercise  the 
right  of  stoppage  in  transitu. 

Gossler  advanced  the  money  on  a  cargo  of  iron  for  Schepeler  and  re- 
ceived the  bill  of  lading  as  security  for  the  advance.  Gossler  sent  the  bill 
of  lading  to  Schepeler,  who  became  insolvent  before  he  received  the  goods. 
Held,  that  Gossler  could  stop  the  goods  in  transit  and  could  retake  them 
and  compel  Schepeler  to  deliver  to  him  the  bill  of  lading. 

—  Gossler  v.  Schepeler,  5  Daly  (N.  Y.)  476. 

This  right  can  be  exercised  only  against  an  insolvent  or 
bankrupt  person.  By  an  insolvent  is  meant  one  unable  to  pay 
his  debts  in  the  usual  course  of  his  business. 

It  was  held  that  the  fact  that  the  vendee's  notes  went  to  protest  be- 
cause of  his  inability  to  pay  them  in  the  regular  course  of  business  was  suf- 
ficient to  justify  the  vendor  in  exercising  the  right  of  stoppage  in  transitu. 

—  Durgy  Cement  Co.  v.  O'Brien,  123  Mass.  12. 

The  Uniform  Law  provides  that  a  person  is  insolvent  who 
has  ceased  to  pay  his  debts  in  the  ordinary  course  of  business, 
or  cannot  pay  them  as  they  become  due,  whether  he  has  com- 
mitted an  act  of  bankruptcy  or  is  insolvent  within  the  meaning 
of  the  federal  bankruptcy  law,  or  not. 

If  the  vendor  stops  the  goods  when  the  purchaser  is  solvent, 
he  does  so  at  his  peril,  and  will  be  obliged  to  deliver  the  goods 
in  addition  to  becoming  liable  for  damages  to  the  vendee. 


io8  SALES  OF  PERSONAL  PROPERTY 

The  right  of  stoppage  in  transitu  is  defeated  in  case  the  bill 
of  lading  is  in  the  hands  of  the  buyer  and  he  transfers  it  to  a 
third  person  who  in  good  faith  pays  value  for  it.  The  third 
party  can  hold  the  goods. 

Rights  of  Buyer.  —  When  the  seller  refuses  to  deliver  the 
goods  to  the  buyer,  who  has  acquired  the  right  of  ownership: 

1.  The  buyer  may  sue  the  seller  for  damages  for  withhold- 
ing the  goods. 

2.  The  buyer  may  bring  an  action  in  replevin  to  force  the 
seller  to  deliver  the  goods  to  him. 

An  action  in  replevin  is  an  action  brought  by  one  who  is 
entitled  to  the  possession  of  certain  goods  to  compel  the  one 
who  is  wrongfully  retaining  possession  of  them  to  give  them  up. 
It  is  based  on  the  principle  that  the  one  who  is  the  owner 
of  the  goods  is  entitled  to  the  possession  of  them. 

3.  If  the  buyer  does  not  have  the  right  of  ownership,  but 
instead  the  right  of  contract  to  have  the  goods  delivered  to  him, 
he  may  sue  the  seller  for  damage  for  breach  of  contract,  or  under 
certain  conditions  may  demand  specific  performance. 

The  amount  of  damages  will  be  the  difference  between  the 
contract  price  and  the  market  price  at  the  time. 

It  was  held  that  a  purchaser  can  recover  as  damages  from  a  vendor 
who  refuses  or  fails  to  deliver  the  goods  bought,  the  difference  between 
the  agreed  price  and  the  market  price  at  the  time  they  ought  to  have  been 
delivered,  that  is,  the  loss  which  the  vendee  would  suffer  if  he  had  to  go 
out  and  buy  the  articles  in  the  market.  —  Harralson  v.  Stein,  50  Ala.  347. 

The  remedy  of  specific  performance  will  be  granted  by  a 
court  of  equity  when,  from  the  pecuHar  nature  of  the  case,  money 
damages  are  an  inadequate  remedy.  This  means  simply  fulfill- 
ing a  contract  according  to  its  precise  terms  (page  67). 

Myer  purchased  three  pieces  of  antique  furniture  from  The  Molton  Co. 
for  which  he  paid  $300.  The  Molton  Co.  refused  to  deliver  the  furniture. 
As  this  furniture  cannot  be  obtained  elsewhere,  Myer  is  entitled  to  the 
remedy  of  specific  performance.  He  can  bring  action  and  a  court  of  equity 
will  compel  The  Molton  Co.  to  deliver  the  furniture. 

Remedies  for  Seller's  Breach  of  Warranty.  —  When  there 
has  been  a  breach  of  warranty  on  the  part  of  the  seller: 

I.  The  buyer  may  keep  the  goods  and  deduct  from  the  pur- 
chase price  (or,  if  he  has  paid  for  the  goods,  may  recover  from 


REMEDIES  FOR  BREACH  109 

the  seller)  an  amount  equal  to  the  difference  between  the  value 
of  goods  as  contracted  for  and  the  value  of  the  goods  as  delivered. 

2.  The  buyer  may  refuse  to  accept  the  goods,  or,  if  he  has 
already  accepted  them  in  ignorance  of  their  condition,  he  may 
return  them  within  a  reasonable  time  after  discovering  the 
breach  of  warranty.    He  should  give  prompt  notice  to  the  seller. 

When  an  order  for  goods  separately  specifies  the  quantity 
and  price  of  each  article,  the  contract  is  several  and  the  buyer 
may  retain  the  articles  which  are  in  accordance  with  the  contract 
and  refuse  or  return  those  which  are  not. 

When  the  buyer  refuses  or  returns  the  goods,  he  has  a  right 
of  action  for  damages  against  the  seller  for  breach  of  the  covenant 
of  warranty. 

8.  AUCTION  SALES 

Sales  at  Auction.  —  In  an  auction  sale  the  assumption  is 
that  the  goods  will  be  sold  to  the  highest  bidder.  By-bidding 
is  illegal  in  most  states.  By-bidding  is  bidding  on  the  articles 
offered  for  sale,  by  pre-arrangement  with  the  seller,  for  the  pur- 
pose of  running  up  the  price  or  keeping  the  articles  from  being 
sold  for  less  than  the  seller  is  willing  to  accept. 

A  purchaser  who  buys  an  article  where  by-bidding  was 
practiced  may  return  it  and  demand  a  return  of  the  money 
paid. 

General  Regulations.  —  Auction  hand  bills  are  usually 
printed  which  contain  the  regulations.  These  regulations  must 
not  conflict  with  any  law  in  force  with  reference  to  auction 
sales. 

Bids  are  made  by  signs  or  nods. 

The  sale  is  made  when  the  auctioneer  lets  his  hammer  fall. 

The  auctioneer  may  refuse  to  recognize  insignificant  bids. 

The  seller  may  reserve  the  right  to  reject  any  or  all  bids. 

The  sale  may  be  made  on  some  conditions  which  are  speci- 
fied. 

The  buyer  must  comply  with  the  conditions  of  the  sale  or 
forfeit  any  amount  deposited  on  the  purchase. 

The  seller  has  a  right  of  action  for  damages  against  a  buyer 
who  fails  to  take  property  "  knocked  down  to  him." 


no  SALES  OF  PERSONAL  PROPERTY 

The  auctioneer  acts  as  agent  for  the  seller  in  selling  the 
property. 

The  seller  is  bound  to  carry  out  the  sales  made  by  the  auc- 
tioneer according  to  the  sales  memorandum. 

The  auctioneer  is  not  allowed  to  bid  for  himself. 

The  law  usually  requires  an  auctioneer  to  have  a  license. 

The  auctioneer  has  a  lien  on  the  property  for  his  commission 
and  he  may  require  that  he  be  paid  before  giving  up  the  prop- 
erty to  the  purchaser. 

QUESTIONS 

1.  What  three  rights  has  the  seller  for  breach  of  contract  on  the 
part  of  the  buyer? 

2.  What  limitation  is  placed  by  the  Uniform  Law  on  the  right  to 
store  goods? 

3.  If  the  title  and  possession  have  passed  to  the  buyer,  what  is  the 
only  remedy  the  seller  has  for  breach  of  contract? 

4.  (a)  What  is  the  seller's  right  of  lien?     (b)  When  does  it  arise? 

5.  What  conditions  give  rise  to  the  right  of  stoppage  in  transitu? 

6.  Who  may  exercise  the  right  of  stoppage  in  transitu? 

7.  How  does  the  seller  exercise  this  right  of  stoppage? 

8.  How  is  insolvency  of  the  buyer  determined? 

9.  What  risk  does  the  seller  assume  when  he  stops  the  goods? 

10.  How  may  the  right  of  stoppage  in  transitu  be  defeated? 

11.  What  are  the  rights  of  the  buyer  when  the  seller  refuses  to  de- 
liver the  goods? 

12.  In  case  of  suit  what  would  determine  the  amount  of  damage? 

13.  Explain  the  term  "  specific  performance." 

14.  Grant  contracted  to  purchase  a  picture  by  a  noted  artist.  The 
seller  refused  delivery;   what  remedy  has  Grant?     Why? 

15.  What  remedies  has  the  buyer  in  case  of  breach  of  warranty  on 
the  part  of  the  seller? 

16.  Wherein  does  an  auction  sale  differ  from  a  regular  sale? 

17.  What  are  the  rights  of  the  purchaser  where  by-bidding  is  practiced? 

18.  Downs  bought  a  carload  of  potatoes  from  Fennel.  When  the 
potatoes  were  delivered,  Downs  refused  to  accept  them.  What  remedies 
has  Fennel  for  Downs's  breach  of  contract? 

19.  In  what  case  must  the  seller  sell  the  goods  on  the  buyer's  failure 
to  accept  them? 

IMPORTANT   POINTS 
A  sale  is  a  contract. 

All  the  elements  and  underlying  principles  of  a  contract  are  found 
in  a  sale. 


IMPORTANT  POINTS  in 

In  a  sale,  the  price  must  be  a  money  consideration. 

In  a  barter,  one  article  is  exchanged  for  another  article. 

Where  no  price  is  mentioned,  a  reasonable  price  is  presumed. 

In  a  sale,  the  title  and  possession  may  pass  together,  or  either 
may  pass  without  the  other. 

In  a  bailment,  there  is  a  change  of  possession  without  a  change 
of  title. 

In  a  mortgage,  the  title  is  transferred  as  security.  The  posses- 
sion generally  does  not  pass. 

The  one  who  offers  goods  for  sale  warrants  that  he  is  the  owner, 
or  has  a  right  to  sell  them. 

An  agent  appointed  to  sell  has  no  authority  to  barter. 

The  price  agreed  upon  may  be  any  amount.  It  need  not  be  ade- 
quate. 

Any  one  who  is  competent  to  contract  can  contract  to  buy  or  sell. 

An  infant  as  agent  for  an  adult  may  contract  to  buy  or  sell. 

As  a  rule,  a  person  who  buys  property  from  one  not  the  owner 
obtains  no  title. 

If  the  owner  of  an  article  makes  it  possible  for  another  party  to 
hold  himself  out  as  the  owner,  an  innocent  purchaser  of  the  article 
gets  a  good  title  as  against  the  true  owner. 

A  good  title  never  accompanies  stolen  goods. 

The  finder  of  lost  property  never  acquires  a  good  title  to  it. 

Pledgee  may  sell  when  pledgor  fails  to  fulfill  conditions  of  pledge. 

The  master  of  a  vessel  may  sell  any  portion  of  cargo  when  con- 
ditions make  it  necessary. 

Destruction  of  the  goods  before  the  contract  was  made  and 
without  the  knowledge  of  either  party  renders  the  contract  voidable. 

When  goods  which  are  the  subject  of  a  sale  are  destroyed,  the 
one  vested  with  the  title  must  suffer  the  loss. 

When  the  title  passes  in  a  sale  is,  as  a  general  rule,  determined 
by  the  intention  of  the  parties. 

A  sale  of  part  of  a  mass  of  similar  goods  passes  title  without  sep- 
arating the  part  sold.  If  the  goods  are  not  all  alike  the  part  sold  must 
be  separated  before  title  passes. 

There  can  be  no  complete  sale  in  the  case  of  unascertained 
goods. 

The  sales  contract  may  be  oral,  except  where  the  Statute  of 
Frauds  requires  that  it  be  written. 

A  sales  memorandum,  containing  the  essential  facts,  and  signed 
by  the  party  to  be  charged,  will,  as  a  rule,  satisfy  the  law  requiring 
written  contracts. 

A  bill  of  sale  is  a  formal  written  contract  of  sale. 

Work  and  service  contracts  do  not  come  under  the  Statute  of 
Frauds. 


112  SALES  OF  PERSONAL  PROPERTY 

A  conditional  sale  is  a  sale  based  on  some  specific  conditions 
mentioned  in  the  contract. 

In  a  sale  on  trial,  title  does  not  pass  until  conditions  have  been 
fulfilled. 

A  chattel  mortgage  is  a  conditional  transfer  of  title  to  personal 
property  to  secure  a  debt. 

In  an  installment  sale,  the  goods  may  be  delivered  in  install- 
ments, or  the  price  may  be  paid  in  installments. 

When  the  title  to  property  is  passed,  the  right  of  ownership 
becomes  absolute. 

A  warranty  is  a  separate  contract  which  amounts  to  a  collateral 
undertaking, 

ImpUed  warranties  are  just  as  effective  as  expressed  warranties. 

Caveat  emptor  applies  only  where  the  buyer  has  a  chance  to 
inspect  the  goods. 

Mere  statements  of  opinion  do  not  constitute  warranties. 

The  seller  has  a  right  to  demand  payment  as  a  condition  pre- 
cedent to  delivery. 

The  seller  may  stop  goods  in  transit  if  they  have  been  sold  on 
credit  and  the  buyer  is  insolvent. 

Specific  performance  is  a  remedy  only  where  money  damages 
will  not  suffice. 

Things  not  in  existence  cannot  be  the  subject  of  a  sale,  although 
they  may  be  the  subject  of  an  agreement  to  sell. 

A  contract  of  sale  will  not  be  set  aside  because  of  inadequacy  of 
price,  unless  there  is  proof  of  fraud  or  undue  advantage. 

What  is  termed  **  giving  a  refusal "  of  an  article  to  a  party  who 
may  or  may  not  take  it  within  a  certain  time  is  not  vaUd  unless  the 
agreement  is  supported  by  consideration  or  under  seal. 

When  goods  are  sent  to  a  party  by  mistake  and  he  makes  use 
of  them  with  full  knowledge  of  the  facts,  he  becomes  the  purchaser 
and  must  pay  full  value  for  the  goods. 

A  fraudulent  representation  to  be  actionable  must  be  false;  must 
have  been  known  to  be  false  by  the  seller  at  the  time  it  was  made ; 
must  be  in  regard  to  a  material  part  of  the  contract;  must  be  made 
with  the  intent  that  it  be  relied  upon;  and  the  buyer  must  rely  on  it 
to  his  injury. 

Fraud  renders  a  sale  voidable  and  not  void. 

Possession  of  personal  property  is  not  title.  It  is  evidence  of 
title  but  will  not  protect  one  who  buys  against  the  true  owner. 

TEST    QUESTIONS 

1.  Are  uniform  state  laws  desirable  on  all  subjects  that  affect  business? 

2.  Of  what  importance  is  the  question,  whether  a  transaction  is  a 
sale  or  a  contract  to  sell? 


CASE  PROBLEMS  113 

3.  Can  an  article  not  in  existence  become  the  subject  of  an  executed 
sale?     Explain. 

4.  Must  selection  precede  the  transfer  of  the  ownership  of  goods? 
Explain. 

5.  Is  a  written  contract  necessary  when  a  sale  comes  under  the 
Statute  of  Frauds,  if  both  parties  carry  out  the  contract? 

6.  Does  a  statement  on  the  part  of  the  buyer  to  the  effect  that  the 
goods  are  to  be  used  for  a  certain  purpose  affect  the  sale?    Explain. 

7.  Under  what  circumstances  has  the  buyer  the  right  to  have  the 
contract  of  sale  carried  out  specifically? 

8.  Do  conditional  sales  contracts  in  your  state  have  to  be  filed?    If 
so,  where  are  they  filed? 

9.  (a)  What  purpose  do  chattel  mortgages  serve?     (b)  Where  do 
chattel  mortgages  have  to  be  filed? 

10.   What  constitutes  fraud  in  sales  contracts? 


CASE   PROBLEMS 

Give  the  decision  and  state  fully  the  principles  of  law  involved  in  each  case. 

1.  Morton  kept  a  borrowed  plow  for  several  months  and  finally  sold 
it  to  Ham,  who  thought  Morton  was  the  owner.    Has  Ham  a  good  title? 

2.  Pond,  a  hired  man,  stole  several  chickens  from  the  farmer  for  whom 
he  worked  and  sold  them  to  a  hotel-keeper,  who  consumed  them,  not  know- 
ing they  had  been  stolen.    What  legal  remedy  has  the  farmer? 

3.  Dorety  bought  a  moving  van  from  Owen,  on  which  was  painted 
"J.  W.  Owen  —  Storage  —  Moving."  The  moving  van  did  not  belong  to 
Owen.    Did  Dorety  get  a  good  title  as  against  the  true  owner? 

4.  Ordway  contracted  to  deliver  to  Logan  1000  bales  of  hay  at  $25 
per  ton,  to  be  paid  for  as  delivered.  Ordway  had  delivered  650  bales  when  a 
fire  destroyed  the  350  bales  remaining.  What  should  be  the  result  of  an 
action  by  Logan  against  Ordway  for  damages  for  breach  of  contract? 

5.  Dyre,  an  apple  buyer,  contracted  with  Metz,  an  exporter,  for  the 
sale  of  the  apples  from  an  orchard  Dyre  expected  to  buy.  Was  this  trans- 
action a  sale  or  a  contract  to  sell?    Explain. 

6.  Bowden  agreed  to  buy  a  wagon  from  a  blacksmith  who  was  to 
repair  one  wheel  and  paint  it  before  delivery.  Bowden  paid  ten  dollars 
on  the  purchase  price.  Before  the  wagon  was  ready  for  delivery  the  shop 
and  its  contents,  including  the  wagon  in  question,  was  destroyed  by  fire. 
Who  should  bear  the  loss? 


114  SALES  OF  PERSONAL  PROPERTY 

7.  ToUe  accepted  on  thirty  days'  trial  a  machine  for  use  in  his  laundry. 
After  keeping  it  six  months  without  paying  for  it,  he  sought  to  return  it  on 
the  ground  that  it  was  not  satisfactory.  The  seller  refused  to  take  the 
machine  back  and  brought  action  to  recover  the  price.  How  should  this 
case  be  decided? 

8.  Nixon  contracted  to  build  a  portable  garage  for  Hand.  The 
garage  was  to  be  built  according  to  a  design  which  Nixon  had,  and  the 
price  was  to  be  $700.  When  the  garage  was  completed  for  delivery  Hand 
refused  to  accept  it,  claiming  it  was  not  built  according  to  directions.  Un- 
der the  circumstances  what  courses  are  open  to  Hand? 

9.  Swartz  contracted  orally  with  Green  for  the  purchase  of  1000 
bushels  of  wheat  at  $2  per  bushel.  Swartz  was  to  take  the  wheat  within 
thirty  days,  but  failed  to  do  so.  Green  waited  nearly  sixty  days  and  then 
brought  action  for  damages,  as  wheat  had  dropped  in  price  in  the  mean- 
time to  $1.50  a  bushel.    How  should  this  case  be  decided? 

10.  Jackson  contracted  to  purchase  and  sell  100  light  auto  delivery 
trucks  during  a  certain  season.  He  purchased  and  delivered  forty  and  then 
before  the  season  was  half  over  he  declared  his  intention  not  to  accept  or 
sell  any  more  trucks.  What  rights  has  the  seller?  Can  he  take  action  at 
once  or  must  he  wait  until  the  time  under  the  contract  expires? 

11.  Kent  ordered  a  new  body  for  his  automobile  from  the  Rush  Auto 
Body  Co.,  to  be  built  according  to  a  design  furnished  by  Kent  and  unlike 
bodies  built  regularly  by  the  Rush  Co.  When  the  body  was  completed 
for  delivery,  Kent  refused  to  accept  it  and  claimed  he  was  not  bound  by 
the  contract,  as  it  was  not  in  writing.    How  should  this  case  be  decided? 

12.  "I  hereby  agree  to  purchase  1000  50-pound  chests  of  Y.  H.  tea 
from  the  Gordon  Co.,  100  chests  to  be  delivered  each  month  for  ten  months, 
same  to  be  paid  for  as  delivered. 

J.  C.  Flinch." 
Does  this  memorandum  satisfy  the  requirements  of  the  Statute  of 
Frauds? 

13.  Brewer  purchased  a  piano  on  a  conditional  sale  contract,  payments 
to  be  made  in  installments.  Before  paying  all  the  installments  he  had  an 
auction  sale  and  sold  all  his  personal  property,  including  this  piano.  Parks 
purchased  the  piano,  not  knowing  Brewer  had  purchased  it  on  the  install- 
ment plan  and  had  not  paid  all  the  installments.  Did  Parks  get  a  good  title  ? 
Explain. 

14.  Morley  purchased  a  quantity  of  office  furniture  on  which  there 
was  a  chattel  mortgage.  He  did  not  know  that  there  was  a  mortgage  on 
the  furniture.  Did  he  get  a  good  title  as  against  the  mortgagee?  When  he 
discovered  that  the  furniture  was  mortgaged,  what  could  he  do? 


CASE  PROBLEMS  115 

15.  Dempsey  has  a  chattel  mortgage  on  a  number  of  articles  belonging 
to  Wood.  Wood  failed  to  pay  the  debt  secured  by  this  mortgage.  What 
course  is  open  to  Dempsey? 

16.  Lowery  purchased  a  used  automobile  from  Sanderson,  who  war- 
ranted it  to  be  in  good  running  order.  After  using  it  a  few  days,  Lowery 
discovered  that  several  of  the  bearings  were  worn  out,  that  the  car  leaked 
oil,  and  that  one  spring  was  cracked.  Could  Lowery  maintain  an  action 
against  Sanderson  for  breach  of  warranty  and  collect  damages? 

17.  Ingham  contracted  to  buy  1000  bushels  of  oats  by  sample.  When 
the  oats  were  delivered  the  first  lots  were  clean  and  like  the  sample,  but 
those  delivered  later  were  dirty  and  unfit  for  market.  Ingham  refused  to 
accept  the  later  deliveries,  and  the  seller  took  action  for  breach  of  con- 
tract.   What  should  be  the  outcome  of  this  case? 

18.  Wilkins  and  Company  sold  a  bill  of  goods  amounting  to  $1200  to 
J.  C.  Hemper,  Denver,  terms  5%  ten  days,  net  sixty  days.  After  the  goods 
had  been  shipped  Wilkins  and  Company  learned  through  the  Bradstreet 
Agency  that  Hemper  had  filed  a  petition  in  bankruptcy.  What  can 
Wilkins  and  Company  do  to  protect  their  interests? 

19.  Benson,  not  knowing  its  real  value,  sold  a  very  valuable  piece  of 
antique  furniture  for  $50.  The  purchaser  paid  $10  on  the  purchase  price 
and  agreed  to  call  the  next  day,  pay  the  balance,  and  take  the  article.  In 
the  meantime  Benson's  friends  told  him  the  piece  of  furniture  was  worth 
$500  and  discouraged  him  in  making  the  sale.  When  the  purchaser  called 
Benson  ofifered  to  give  back  the  $10  paid  and  refused  to  deliver  the  article. 
What  can  the  purchaser  do? 

20.  Gaynor  purchased  a  team  and  wagon  at  an  auction  sale.  After 
the  team  had  been  "knocked  down  to  him"  a  neighbor  who  knew  the 
team  told  him  they  would  run  away  and  were  not  safe  to  drive.  Gaynor 
refused  to  take  the  team  or  to  comply  with  the  terms  of  the  sale.  Is  he 
bound?     Explain. 

21.  Allen  delivers  to  Barker  100  yards  of  cloth  to  be  made  into  coats. 
When  the  coats  are  nearly  completed  Barker's  shop  burns  and  the  coats 
are  destroyed.    Upon  whom  will  the  loss  fall? 

22.  Brown  delivered  two  black  walnut  logs  at  Smith's  sawmill.  Smith 
in  return  was  to  give  him  500  feet  of  planed  pine  lumber.  What  was  the 
transaction,  a  sale,  a  barter,  or  a  bailment? 

2S-  Groves  sold  to  Smith  his  horse  which  had  broken  out  of  the  pasture 
lot  and  wandered  away,  its  whereabouts  at  the  time  being  unknown  to 
Groves.  Later  it  came  back  to  Groves's  farm  and  Smith  claimed  it.  Could 
he  recover? 


ii6  SALES  OF  PERSONAL  PROPERTY 

24.  Gordon  loses  his  watch  and  it  is  afterwards  picked  up  on  the  street 
by  Hogan,  a  jeweler.  Hogan  puts  it  in  his  shop  and  sells  it  to  Lane.  Gor- 
don discovers  it  in  the  possession  of  Lane  and  sues  for  its  recovery.  Lane 
bought  the  watch  in  good  faith,  believing  it  to  belong  to  Hogan,  and  paid 
what  it  was  reasonably  worth.    Who  gets  the  watch? 

25.  In  the  above  case,  if  Hogan  had  stolen  the  watch,  would  the  re- 
sult have  been  any  different? 

26.  Good  sold  a  team  of  horses  to  Farnum.  He  was  driving  the  horses 
when  the  sale  took  place  and  immediately  delivered  them  over.  It  was 
found  afterwards  that  the  horses  did  not  belong  to  him,  and  an  action 
was  brought  against  him  for  breach  of  warranty.  Was  there  any  war- 
ranty?   If  so,  what? 

27.  Suppose  at  the  time  Good  sold  the  horses  he  did  not  have  them 
in  his  possession,  but  stated  that  they  were  in  Cain's  livery  stable.  Farnum 
brought  an  action  against  him  for  breach  of  warranty.  Was  there  any 
warranty?    If  so,  what? 

28.  Frank  sold  a  carload  of  apples  to  Jeffreys,  nothing  being  said  as 
to  their  quality.  They  were  in  the  possession  of  Frank  at  the  time  and 
each  party  had  an  opportunity  to  inspect  them.  It  was  found  that  they 
were  of  an  inferior  grade,  and  Jeffreys  sued  for  damages  for  breach  of  an 
implied  warranty  of  quality.    Could  he  recover?    What  rule  would  apply? 

29.  Hayes  contracted  to  make  for  Young  a  new  improved  hayrack. 
When  Young  received  it  he  found  that  it  was  not  suitable  for  the  purpose 
for  which  it  was  purchased  and  would  not  remain  in  position  on  the  wagon. 
Was  there  any  implied  warranty  on  the  part  of  Hayes? 

30.  Meyer  purchased  a  quantity  of  cloth  from  Scott.  The  order  was 
taken  from  a  sample  which  Scott  carried  with  him.  When  the  cloth  was 
received  it  was  an  entirely  different  quaHty,  being  much  lighter  in  weight. 
Meyer  sued  for  damages  on  an  implied  warranty  that  the  cloth  was  to  be 
like  the  sample.    Was  there  such  an  implied  warranty  and  could  he  recover? 

31.  Aaron  sold  Bailey  100  barrels  of  sugar  to  be  delivered  in  30  days. 
When  the  time  for  delivery  arrived,  Bailey  refused  to  accept  the  sugar  or 
pay  the  purchase  price.    What  three  remedies  had  Aaron? 

32.  If  the  sugar  had  been  delivered  and  accepted  by  Bailey,  but  Bailey 
had  refused  to  pay  for  it,  what  remedies  had  Aaron? 

33.  Watson  went  to  Treulib  and  Co.,  fish  merchants,  and  bought  $20 
worth  of  clams,  stating  that  he  intended  to  use  them  the  same  day  at  a 
clam  bake.  The  clams  proved  to  be  unfit  for  food.  Treulib  and  Co.  re- 
fused to  take  them  back  or  to  return  the  money  paid  for  them.  What  are 
Watson's  rights?    Explain. 


CASE  PROBLEMS  117 

34.  Mahoney  buys  a  stove  from  Fisher,  paying  $5  down  and  signing 
a  contract  which  provides  that  the  stove  has  been  merely  leased  to  Ma- 
honey, the  title  remaining  in  Fisher  until  the  whole  purchase  price  of  $40 
is  paid.  Mahoney  at  once  sells  the  stove  to  Burns,  who  gives  him  $20  for 
it,  believing  the  stove  belongs  to  Mahoney.  Can  Fisher  take  the  stove  from 
Burns? 

35.  If  the  above  transaction  takes  place  in  a  state  requiring  condi- 
tional contracts  to  be  filed,  and  the  above  contract  is  not  filed,  who  is  en- 
titled to  the  stove? 

36.  Coon,  a  sewing-machine  agent,  sells  a  machine  to  Mrs.  Randall, 
telling  her  that  it  is  the  best  machine  on  the  market,  and  that  it  runs  so 
easily  that  it  will  nearly  run  alone.  She  finds  out  that  the  machine  is  of 
inferior  quality,  runs  hard,  and  does  not  work  well,  so  seeks  to  recover  dam- 
ages for  breach  of  warranty.  Does  the  representation  constitute  a 
warranty? 

37.  A  stove  is  sent  to  Lyng  by  Fisher  for  trial,  to  be  returned  if  not 
found  satisfactory,  no  specified  time  within  which  it  must  be  returned 
being  given.  Lyng  keeps  the  stove  a  year  without  offering  to  return  it 
and  then,  when  a  bill  is  presented  for  the  stove,  he  says  that  it  is  not  satis- 
factory and  offers  to  bring  it  back.  Has  the  sale  been  completed,  and  can 
Lyng  be  compelled  to  pay? 

38.  C,  a  commission  merchant,  receives  a  carload  of  watermelons 
from  Logan  &  Co.,  with  instructions  to  hold  them  until  Logan  &  Co.'s 
agent  arrives.  C  sells  them  to  Weaver  as  soon  as  they  are  received.  Lo- 
gan &  Co.  brings  an  action  against  Weaver  to  recover  them.  Who  is  en- 
titled to  the  melons? 

39.  Harrison,  a  horse  dealer,  employed  Rice  to  purchase  a  horse  for 
him  to  match  one  he  then  owned.  Rice  bought  a  horse,  taking  a  bill  of 
sale  to  himself.  Harrison  knew  of  this  and  allowed  Rice  to  keep  the  horse 
and  bill  of  sale.  Rice  sold  the  horse  without  authority  to  Hooker.  Could 
Harrison  recover  the  horse  from  Hooker? 

40.  Clark,  a  farmer,  sells  to  Spence  in  the  spring,  the  hay  and  com 
that  he  shall  raise  on  his  farm  during  the  coming  season.  The  corn  has  not 
yet  been  planted.     Is  the  sale  good? 

41.  Clark  also  sells  to  Spence  the  wool  from  100  sheep  which  he  agrees 
to  buy  within  30  days,  but  which  he  does  not  yet  own.     Is  the  sale  good? 

42.  Brown  goes  to  Anderson,  a  cattle  dealer,  and  out  of  a  herd  of  50 
cattle  in  the  field  buys  10,  pays  for  them,  and  promises  to  take  them  the 
next  day.  Without  picking  out  the  particular  10,  he  leaves.  Has  the  title 
in  these  10  passed  to  Brown  or  is  it  still  in  Anderson? 


ii8  SALES  OF  PERSONAL  PROPERTY 

43.  In  the  above  case  suppose  Brown,  before  leaving,  picked  out  and 
branded  the  10  cattle,  paid  the  purchase  price,  and  agreed  to  call  and  drive 
them  away  the  next  day.  Did  the  title  pass  to  Brown  or  was  it  still  in 
Anderson? 

44.  Potter  goes  to  Cams,  a  grain  merchant,  and  buys  50  bushels  of 
wheat  out  of  a  bin  containing  several  thousand  bushels.  He  pays  for  the 
wheat,  but  it  is  not  measured.  That  night  the  warehouse  burns.  Upon 
whom  does  the  loss  of  the  50  bushels  of  wheat  fall.  Potter  or  Cams? 

45.  Fitch  makes  a  written  agreement  with  Boyd  for  the  purchase  of 
1000  yards  of  silk  at  $1  per  yard,  to  be  delivered  May  31.  On  May  i, 
Fitch  meets  Boyd  and  tells  him  that  he  cannot  use  the  silk  and  will  not 
take  it.    What  are  Boyd 's  rights  and  what  is  the  measure  of  damages  if  any? 

46.  Miner  found  a  very  valuable  uncut  diamond.  Without  knowing 
what  it  was  he  sold  it  to  Ashley  for  $20.  Ashley  took  it  to  an  expert,  who 
bought  it  for  $5000.  Miner  sued  to  get  the  full  yalue  of  the  diamond. 
Could  he  collect?     Explain. 

47.  Wheeler,  a  tailor,  contracted  with  Banks  to  make  a  suit  of  clothes 
and  an  overcoat  for  him  for  $60.  When  the  suit  and  overcoat  were  finished, 
Banks  refused  to  take  them  and  when  sued  pleaded  the  Statute  of  Frauds. 
Is  his  defense  good?     Explain. 

48.  In  a  horse  deal  with  Bryan,  McKay  stated  that  his  horse  was 
8  years  old  and  sound.  Bryan  found  on  examination  that  the  horse  was 
12  years  old  and  was  suffering  from  spavin;  nevertheless  he  bought  the 
horse  for  $150.  Later  Bryan  became  dissatisfied,  claimed  that  he  had  been 
defrauded,  and  sued  for  damages.  What  should  be  the  outcome  of  the 
suit?     Explain. 


AGENCY 

I.  IN  GENERAL 

Definition.  —  Agency  is  the  legal  relation  existing  between 
one  party  known  as  the  principal  and  another  party  known  as 
the  agent.  This  relation  is  usually  the  result  of  a  contract 
whereby  one  party  is  to  act  for  the  other,  and  this  contract  is 
known  as  an  agency  contract. 

The  capabilities  of  one  person  are  limited,  and  it  can  readily 
be  seen  how  impossible  it  may  be  for  any  one  to  transact  all  his 
business  without  assistance,  and  we  realize  how  important  a  busi- 
ness factor  this  legal  relationship' of  agency  is  when  we  consider 
that  by  far  the  greater  part  of  the  world's  business  is  carried  on 
through  the  instrumentality  of  agencies.  Transportation  com- 
panies, insurance  companies,  the  government  departments,  and 
the  various  sales  organizations  are  the  best  examples  of  agency. 

The  Principal.  —  The  principal  is  the  person  for  whom  an- 
other acts  as  agent.  Any  person  who  is  competent  to  contract 
may  appoint  an  agent  to  act  for  him.  The  theory  of  agency  is 
based  on  the  fundamental  principle  that  whatever  a  person  may 
do  for  himself  he  may  have  another  person  do  for  him. 

The  Agent.  —  The  agent  is  the  person  employed  by  another 
to  do  some  act  or  acts  for  the  employer's  benefit  or  on  his  ac- 
count. Any  one  who  is  capable  of  doing  as  directed  may  act 
as  agent.  One  particular  fact  to  be  noted  is  that  a  person  may 
be  legally  incompetent  to  act  for  himself,  yet  he  may  lawfully 
act  as  agent  for  some  one  else. 

Classes  of  Agents.  —  Agents  are  usually  classified  as  general, 
special,  and  public. 

General  Agent.  —  A  general  agent  is  one  who  is  authorized 
to  transact  all  of  his  principal's  business  of  a  particular  kind,  or 
in  a  certain  place.  Having  received  from  his  principal  a  general 
authority  to  do  certain  acts,  he  is  not  limited  to  the  performance 
of  a  specific  act,  but  is  permitted  a  certain  amx)unt  of  discretion 
in  carrying  on  the  particular  line  of  business  for  which  he  is 

119 


I20  AGENCY 

employed.  The  acts  of  a  general  agent,  while  acting  within 
the  scope  of  his  authority,  will  bind  his  principal,  whether  or 
not  they  are  in  accordance  with  his  private  instructions.  If  he 
is  apparently  clothed  with  authority,  the  principal  is  bound. 

One  Chappell  was  appointed  general  agent  to  manage  Gasharie's 
store,  buy  and  sell  goods,  issue  notes,  etc.  He  purchased  goods  on  Gasha- 
rie's credit,  which  was  contrary  to  orders.  Held,  Chappell  was  a  general 
agent  and  as  such  his  acts  were  binding  on  Gasharie,  even  though  con- 
trary to  his  private  instructions.  —  Manning  v.  Gasharie,  27  Ind.  399. 

Special  Agent.  —  A  special  agent  is  one  who  is  appointed 
for  a  special  purpose,  or  to  transact  a  particular  piece  of  busi- 
ness. He  is  given  but  limited  authority.  His  acts  do  not  bind 
his  principal  beyond  the  scope  of  the  particular  authority  given 
him. 

In  the  case  of  a  general  agent  there  has  been  general  power 
delegated,  the  authority  is  necessarily  broad,  and  a  person  deal- 
ing with  such  agent  may  reasonably  infer  that  he  has  the  au- 
thority usually  conferred  upon  such  agents  under  like  cir- 
cumstances; while  in  the  appointment  of  a  special  agent,  the 
object  is  to  accomplish  a  special  purpose  or  to  carry  out  a  par- 
ticular piece  of  business,  and  one  would  naturally  infer  the 
authority  was  limited. 

In  the  case  of  a  railroad  company,  a  ticket  agent  would  be  considered 
a  special  agent  to  sell  tickets,  and  his  duties  and  authority  would  be  con- 
fined to  the  sale  of  tickets,  while  the  general  superintendent  of  the  road 
would  be  considered  a  general  agent,  as  he  would  have  general  duties  to 
perform  and  general  authority  over  all  departments  of  the  road. 

Public  Agents.  —  All  public  officials  and  all  employees  of 
every  department  of  our  government  are  public  agents.  In 
one  particular  there  is  a  difference  between  pubHc  agents  and 
other  agents.  A  public  agent  who  exceeds  his  authority  in  the 
making  of  contracts  is  not  liable,  for  the  reason  that  every  one 
is  supposed  to  know  what  authority  a  public  agent  has. 

^  If  the  Chief  of  Police  in  a  certain  city  should  contract  with  a  local 
painter  to  paint  the  building  used  as  police  headquarters  and  the  painter 
should  perform  his  part  of  the  contract,  he  could  not  collect  from  the  city, 
as  he  had  not  been  officially  authorized  to  paint  the  building,  and  he  could 
not  hold  the  Chief  of  PoHce,  as  he  is  not  liable  in  this  instance  for  having 
exceeded  his  authority. 


IN  GENERAL  121 

Del  Credere  Agents.  —  Sometimes  an  agent  who  is  employed 
to  sell  goods  guarantees  his  principal  against  loss  from  any  of 
the  customers  to  whom  he  sells.  In  such  case  the  agent  is 
termed  a  "  del  credere  agent.''  In  the  United  States  it  is  the 
rule  that  the  agent  is  held  primarily  and  not  as  a  guarantor, 
so  his  promise  need  not  be  in  writing.  Sales  made  in  this  way 
amount  practically  to  sales  by  the  principal  to  the  agent. 

Persons  Known  as  Agents. —  A  person  appointed  as  agent 
may  be  known  as  agent,  factor,  commission  merchant,  broker, 
attorney,  or  special  representative  to  some  person.  Sometimes 
other  employees  may  be  authorized  to  act  as  agent;  for  instance, 
chauffeurs,  factory  workers,  and  domestic  servants  may,  at 
times,  act  in  the  capacity  of  agent.  There  is  this  distinction 
between  servant  or  employee  and  agent.  The  servant  or  em- 
ployee is  considered  a  mere  mechanical  worker,  whereas  the 
agent  is  a  business  representative,  and  it  is  his  duty  to  repre- 
sent his  employer  in  business  transactions.  There  are  many 
cases,  however,  where  the  employee  is  also  an  agent;  for  ex- 
ample, the  chauffeur  may  be  directed  to  buy  supplies  for  his 
employer,  or  the  domestic  servant  may  be  authorized  to  purchase 
provisions  for  the  household,  in  which  cases  they  are  acting  as 
agents. 

QUESTIONS 

1.  What  is  an  agency?    How  is  an  agency  created? 

2.  Why  is  the  subject  of  agency  important? 

3.  What  are  the  parties  to  an  agency  called? 

4.  What  does  the  word  "agent"  mean? 

5.  Why  are  agents  necessary? 

6.  Who  may  act  as  principal?     Who  may  act  as  agent? 

7.  Has  an  infant  a  legal  right  to  act  as  agent? 

8.  What  are  the  different  classes  of  agents?    Define  each. 

9.  What  limit  is  there  on  the  authority  of  a  general  agent? 
10.  What  limit  is  there  on  the  authority  of  a  special  agent? 

li.  What  is  the  principal  difference  between  public  agents  and  other 
agents? 

12.  Who  is  a  del  credere  agent? 

13.  May  servants  and  other  employees  act  as  agents? 

14.  Give  some  examples  of  agents. 

15.  What  is  the  distinction  between  employees  and  agents?  Give 
examples. 


122  AGENCY 


2.  HOW  CREATED 


Agreement.  —  The  relation  of  principal  and  agent  may  be 
created  in  several  different  ways.  The  ordinary  way  is  by 
agreement,  as  where  one  man  employs  or  appoints  another  to 
represent  him  in  a  certain  transaction  or  in  a  general  way. 
This  is  really  an  agency  by  contract,  except  in  case  of  a  gratui- 
tous agent  (one  who  is  not  to  receive  any  pay  for  his  services), 
and  all  the  rules  governing  contracts  govern  also  the  relations 
of  the  principal  and  agent  as  between  themselves. 

The  reason  why  a  gratuitous  agent  is  not  an  agent  by  con- 
tract is  that,  there  being  no  consideration,  the  agreement  cannot 
be  enforced  as  a  contract,  as  we  have  learned  in  the  chapter  on 
contracts. 

Form  of  Agreement.  —  An  agent  by  agreement  may  be  ap- 
pointed orally  except  in  the  following  cases: 

1.  When  by  the  terms  of  the  agency  the  service  is  not  to  be 
performed  within  one  year;  then,  by  the  Statute  of  Frauds,  the- 
agreement  must  be  in  writing. 

Southgate  made  an  oral  agreement  in  February  with  Hinckley  that 
Hinckley  would  carry  on  Southgate's  gristmill  for  one  year  from  April  i, 
next.  Hinckley  offered  to  perform,  but  Southgate  would  not  allow  him. 
It  was  held  by  the  court  that  the  case  was  clearly  within  the  Statute  of 
Frauds,  since  the  work  was  not  to  be  performed  within  one  year;  conse- 
quently the  parol  agreement  could  not  be  enforced. 

—  Hinckley  v.  Southgate,  ii  Vt.  428. 

2.  When  the  contract  between  the  principal  and  the  third 
party,  to  be  executed  by  the  agent,  is  required  to  be  under  seal; 
then  the  authority  of  the  agent  to  execute  the  instrument  must 
itself  be  under  seal. 

In  a  suit  on  a  bond  signed  by  one  Williams  as  agent  for  one  Pierce,  it 
was  proved  that  Williams'  authority  was  oral.  It  was  held  that  authority 
to  execute  a  sealed  instrument  must  itself  be  under  seal  and  Pierce  was  not 
liable  on  the  instrument. — Overman  v.  Atkinson,  102  Ga.  750. 

The  following  are  exceptions  to  the  rule  that  an  agent  to 
make  a  contract  under  seal  must  receive  his  appointment  under 
seal: 

I.  When  the  agent  signs  the  contract  in  the  presence  of 
his  principal. 


HOW  CREATED  123 

2.  When  the  instrument  signed  by  the  agent,  although  under 
seal,  is  not  required  to  have  a  seal. 

3.  When  the  agent  signs  as  a  member  of  his  firm. 

4.  When  the  agent  signs  for  a  corporation. 

Agent^s  Appointments  under  Seal.  —  The  formal  way  of  ap- 
pointing an  agent  is  by  a  written  instrument  under  seal  known 
as  the  power  of  attorney.  Certain  instruments  such  as  deeds 
and  mortgages  are  required  to  be  under  seal  and  are  usually 
witnessed  and  then  acknowledged  before  a  notary  public  (an 
official  appointed  to  take  acknowledgments,  administer  oaths, 
etc.),  and  for  this  reason  the  power  of  attorney  by  which  the 
agent  receives  his  authority  to  make  a  deed  and  mortgage  or 
any  other  instrument  under  seal  on  behalf  of  his  principal 
must  be  executed  in  the  same  formal  way. 

A  contract  for  the  sale  of  land  does  not  necessarily  have  to 
be  under  seal,  although  it  must  be  in  writing  under  the  Statute 
of  Frauds.  An  agent  could  contract  for  the  purchase  or  sale  of 
real  property,  but  he  could  not  execute  a  sealed  instrument 
such  as  deeds  or  mortgages  without  having  a  power  of  attorney. 

Ratification.  —  The  second  way  in  which  the  relation  of  prin- 
cipal and  agent  may  be  created  is  by  ratification. 

The  assent  of  the  principal  to  the  act  of  the  agent  may  be 
given  either  before  or  after  the  agent's  act.  If  given  before, 
then  it  is  an  agency  by  agreement  and  has  already  been  ex- 
plained. If  given  after  the  act  has  been  performed  by  the 
agent,  it  is  a  ratification  of  this  act  and  gives  the  same  effect  to 
it  as  though  there  had  been  a  previous  appointment.  This  may 
be  true  in  a  case  where  the  agent  had  no  previous  authority 
whatever,  or  where  the  agent  had  some  prior  authority  but 
exceeded  this  authority  in  the  particular  act.  The  ratification 
operates  as  an  extension  of  the  authority  to  this  act. 

The  principal  may  ratify  an  agent's  acts: 

1.  By  expressed  words. 

2.  By  acquiescing  in  them  and  allowing  the  agent  to  con- 
tinue. 

3.  By  accepting  the  benefits  resulting  therefrom. 

It  was  held  that  where  a  person  was  clothed  with  some  authority  as 
agent,  the  ratification  by  his  principal  of  his  unauthorized  acts  relates 


124  AGENCY 

back  and  makes  such  acts  of  the  agent  the  acts  of  the  principal  from  the 
beginning,  the  same  as  though  they  had  been  duly  authorized  at  the 
start.  —  Merritt  v.  Bissell,  84  Hun  (N.  Y.)  194. 

A  person  without  authority  purchased  a  bill  of  goods  for  persons  about 
to  form  a  copartnership,  in  their  name  and  on  their  credit  as  partners. 
They  received  the  goods  and  sold  them.  One  of  the  partners  afterwards 
repudiated  the  purchase,  claiming  that  the  other  partner  was  to  buy  the 
goods  and  that  the  agent  had  no  authority  to  buy  for  him,  and  he  so  ad- 
vised the  sellers.  Held,  this  was  not  sufficient.  He  should  have  restored 
the  goods,  but  as  they  kept  the  goods  they  were  liable  as  partners;  they  had 
ratified  the  act  by  retaining  the  benefit.  —  Pike  v.  Douglass,  28  Ark.  59. 

The  ratification  to  bind  the  principal  must  be  made  with  a 
knowledge  of  all  the  material  facts;  if  made  under  a  misunder- 
standing, or  through  a  misrepresentation,  the  principal  will  not 
be  bound.  The  principal  must  repudiate  the  agent's  unauthor- 
ized act  within  a  reasonable  time  after  he  learns  of  it,  or  he  will 
be  presumed  to  have  ratified  it. 

But  if  the  principal  ratifies  the  act  it  must  be  as  a  whole, 
for  he  cannot  accept  the  benefits  of  a  part  and  reject  the  re- 
mainder. 

An  axiom  of  the  law  is,  "A  man  cannot  take  the  benefits  of 

a  contract  without  bearing  its  burdens." 

A  subscription  agent,  canvassing  for  a  history  to  cost  $10,  had  a  book 
for  signatures,  and  on  this  it  was  printed  that  no  terms  except  those  printed 
thereon  should  be  binding.  A  justice  of  the  peace  consented  to  sign  on  con- 
dition that  his  office  fees  from  that  time  to  the  time  of  delivery  of  the  book 
should  be  taken  in  payment.  This  was  agreed,  and  he  was  given  a  written 
memorandum  by  the  agent  to  that  effect.  Held,  if  the  company  ratified 
the  contract  it  must  be  upon  the  terms  agreed  upon.  As  the  agent  went 
beyond  his  authority  they  could  repudiate  the  contract  and  refuse  to  deliver 
the  book,  but  they  could  not  repudiate  part  and  still  hold  the  subscriber. 

—  Eherts  v.  Selover,  44  Mich.  519. 

Necessity.  —  The  third  way  in  which  the  relation  between 
principal  and  agent  may  be  created  is  by  necessity. 

This  is  where  the  relations  or  positions  of  the  parties  are 

such   that  the  authority  of   the  principal  is  presumed.     The 

leading  illustration  of  this  is  the  case  of  husband  and  wife.    The 

wife  can  contract  for  the  necessities  of  the  household  and  bind 

the  husband  for  their  payment. 

It  was  held  that  a  wife  becomes  her  husband's  agent  by  necessity  to 
procure  board  and  lodging  for  herself  and  minor  children  on  his  credit 
when  he  has  driven  her  away  without  means  of  subsistence. 

—  East  V.  King,  77  Miss.  738. 


OBLIGATION  OF  PRINCIPAL  TO  AGENT  125 

Another  illustration  is  that  of  a  shipmaster,  who  has  au- 
thority in  case  of  necessity  to  purchase  supplies  for  the  vessel 
and  pledge,  the  credit  of  the  owner. 

A  libel  was  filed  against  a  vessel  for  necessary  supplies  and  labor  fur- 
nished to  the  vessel  in  a  foreign  port  on  the  authority  of  the  shipmaster. 
It  was  held  that  the  vessel  and  owner  were  liable,  as  a  master  has  authority 
in  a  foreign  port  to  bond  his  owners  for  necessary  repairs  and  supplies. 

—  The  H.  C.  Grady.  87  Federal  Reporter  232. 


QUESTIONS 

1.  How  is  the  relation  of  principal  and  agent  established? 

2.  Who  is  a  gratuitous  agent? 

3.  Why  is  it  that  a  gratuitous  agent  is  not  an  agent  by  contract? 

4.  In  what  three  ways  may  an  agent  be  appointed? 

5.  What  are  the  exceptions  to  the  rule  that  an  agent  may  be  ap- 
pointed orally? 

6.  Is  an  appointment  in  writing  preferred  to  an  oral  appointment? 
Why? 

7.  What  is  meant  by  an  implied  appointment? 

8.  What  exceptions  are  there  to  the  rule  that  an  agent,  to  make  a 
contract  under  seal,  must  receive  an  appointment  under  seal? 

9.  What  is  a  power  of  attorney? 

10.  How  is  an  agency  created  by  ratification? 

11.  Name  three  ways  by  which  a  principal  may  ratify  an  agent's  acts. 

12.  What  are  the  special  rules  governing  ratification? 

13.  How  may  an  agency  be  created  by  necessity?     Give  an  example. 

14.  What  are  the  usual  powers  of  an  agent? 

15.  If  Brown  should  act  for  Grant  without  authority,  what  two  courses 
are  open  to  Grant? 


3.   OBLIGATION  OF   PRINCIPAL  TO  AGENT 

Compensation.  —  The  principal  is  under  obligation  to  the 
agent  to  compensate  him  for  his  services. 

When  the  agreement  fixes  the  compensation  the  agent  is  to 
receive,  this,  of  course,  will  control. 

Wallace  agreed  to  work  for  a  given  time  at  a  certain  salary.  He  stayed 
beyond  the  time,  and  nothing  was  said  about  the  salary  for  the  additional 
period.  It  was  held  that  he  could  recover  the  salary  only  at  the  rate  agreed 
upon.  It  was  said  that  the  best  valuation  of  services  was  that  mutually 
agreed  upon  by  the  parties  themselves. 

—  Wallace  v.  Floyd,  29  Pa.  State  184. 


126  AGENCY 

In  the  absence  of  an  express  contract,  the  law  will  imply  an 
agreement  to  pay  what  the  services  are  reasonably  worth,  un-. 
less  it  can  be  fairly  inferred  that  the  services  were  intended  to 
be  gratuitous. 

Sloan  hired  out  to  work  for  McGuire  during  harvest;  nothing  was  said 
about  wages.  As  Sloan  is  an  able-bodied  workman  and  did  a  good  day's 
work,  it  is  implied  that  he  can  collect  from  McGuire  what  other  workmen 
are  receiving  in  the  same  locality  and  what  his  services  are  reasonably 
worth. 

Even  if  the  service  was  unauthorized  but  is  subsequently 
ratified,  and  the  benefit  is  accepted  by  the  principal,  the  agent, 
ordinarily,  can  recover  for  the  service  to  the  same  extent  as 
though  the  service  had  been  originally  authorized. 

Gelatt  was  employed  to  sell  real  estate  on  the  owner's  terms.  He  sold 
on  other  terms,  but  the  principal  ratified  the  sale.  Held,  that  the  agent 
was  entitled  to  his  commissions  as  originally  agreed. 

—  Gelatt  v.  Ridge,  117  Mo.  553. 

The  principal  is  also  under  obligation  to  reimburse  the  agent 
for  any  sums  which  he  may  have  paid  out,  or  for  which  he  may 
have  become  individually  liable  in  the  due  course  of  his  agency 
and  for  the  principal's  benefit. 

Maitland,  a  broker,  purchased  for  Martin  certain  bonds  which  Martin 
left  in  his  hands  several  years,  when  he  directed  that  they  be  sold.  It  was 
then  learned  that  three  of  the  bonds  had  been  repudiated  by  the  state  where 
issued.  Held,  that  the  broker  might  be  reimbursed;  that  the  loss  fell  on 
Martin  if  the  broker  acted  within  the  lines  of  his  duty  and  in  good  faith. 

—  Maitland  v.  Martin,  86  Pa.  State  1 20. 

The  agent  is  further  entitled  to  indemnity  from  his  principal 
for  the  consequences  of  any  act  performed  within  his  authority 
and  in  the  execution  of  his  employment.  But  to  be  entitled  to 
indemnity  the  act  must  be  lawful,  or  the  agent  must  have  been 
ignorant  of  the  fact  that  the  act  was  illegal. 

Moore  brought  an  action  to  be  reimbursed  for  damages  which  he  had 
been  obliged  to  pay  because  of  certain  acts  performed  by  him  as  agent 
for  Appleton  in  dispossessing  a  third  party  of  lands  claimed  by  Appleton 
and  which  Moore  had  reason  to  believe  belonged  to  Appleton.  Held,  that 
the  act  was  not  manifestly  illegal,  and  that  the  law  implies  a  promise  of 
indemnity  by  the  principal  for  losses  which  flow  directly  and  immediately 
from  the  execution  of  the  agency.  ^ — Moore  v.  Appleton,  26  Ala.  633. 


OBLIGATION  OF  AGENT  TO  PRINCIPAL  127 

The  Employer's  Duty  to  Employees.  —  The  employer's  first 
and  most  important  duty  to  his  employees  is  to  afford  them  pro- 
tection by  providing  a  safe,  sanitary,  and  suitable  place  in  which 
to  work,  and  safe  tools  with  which  to  work.  In  addition  to  this 
no  workman  is  required  to  expose  himself  to  dangers  of  working 
with  reckless  or  incompetent  associates.  If  the  employee  himself 
is  in  any  way  careless,  the  rule  of  contributory  negligence  relieves 
the  employer  from  responsibihty. 

Laws  have  been  passed  in  many  states  which  define  the 
duties  of  employers  and  the  rights  of  employees.  There  are 
two  classes  of  these  laws: 

1.  The  employers'  liability  laws,  which  aim  to  define  the 
employer's  duties  and  liabilities  and  to  change  or  remove  the 
objectionable  rules  of  the  common  law. 

2.  The  workmen's  compensation  laws,  which  aim  to  regu- 
late and  systematize  responsibility  for  injury  and  to  provide 
insurance  for  the  injured. 

Detailed  information  on  these  laws  and  on  other  important 
statutes  will  be  found  in  a  chapter  on  important  statutes  near 
the  end  of  the  text. 


QUESTIONS 

1.  What  are  the  obligations  of  the  principal  to  his  agent? 

2.  How  is  the  compensation  of  the  agent  fixed? 

3.  In  case  nothing  is  said  about  compensation,  what  is  implied? 

4.  What  is  the  rule  if  the  service  rendered  was  unauthorized? 

5.  What  are  the  obligations  of  the  principal  in  the  matter  of  (a)  reim- 
bursing the  agent?  (b)  indemnifying  the  agent  for  loss? 

6.  What  are  the  employer's  duties  to  employees? 

7.  Under  what  conditions  is  the  principal  liable  for  injury    to   the 


agent? 


8.  What  is  an  employers'  liability  law? 

9.  What  is  a  workmen's  compensation  law? 

10.   What  is  meant  by  "  contributory  negligence  "? 


4.   OBLIGATION  OF  AGENT  TO  PRINCIPAL 

Agent  must  Obey  Instructions.  —  The  agent  is  under  obliga- 
tion to  his  principal  to  obey  the  principal's  instructions.  So 
long  as  the  agent  carries  out  his  instructions  he  is  protected, 


liB  AGENCY 

but  if  he  goes  contrary  to  them  and  loss  ensues,  he  is  liable  for 
the  damage;  as,  where  an  agent  is  instructed  by  his  principal 
to  send  a  certain  claim  for  collection  to  A,  and  instead  he  sends 
it  to  B,  and  loss  ensues,  the  agent  is  liable. 

The  Express  Company  received  for  collection  a  draft  with  instructions 
to  return  at  once  if  not  paid.  They  instead  held  the  draft  until  the  drawee 
wrote  for  some  explanation.  They  then  failed  to  present  it  for  two  days 
after  the  drawee  had  received  a  reply  from  the  drawer,  and  at  this  time 
the  drawee  became  insolvent.  Held,  that  the  Express  Company  was  Hable 
to  the  drawer.  —  Whitney  v.  Merchants  Union  Express  Co.,  104  Mass.  152. 

Adams  hired  Robinson  as  her  agent  to  lease  certain  premises  for  $600 
per  year  with  good  and  approved  security.  Robinson  leased  the  premises 
without  security  in  violation  of  his  instructions.  Held,  Robinson  was 
hable  for  any  damages  suffered  by  Adams. —  Adams  v.  Robinson,  65  Ala.  586. 

Agent  must  Use  Judgment. —  The  agent  owes  the  duty  to 
his  principal  to  exercise  judgment  and  skill  necessary  to  the 
prudent  and  careful  discharge  of  his  agency.  This  prudence 
and  skill  can  generally  be  said  to  be  the  same  as  is  ordinarily 
observed  by  prudent  and  careful  men,  under  similar  circum- 
stances and  engaged  in  similar  business. 

Thus,  an  agent  to  purchase  a  carload  of  wheat  must  exer- 
cise and  possess  only  such  knowledge  and  skill  as  is  common  to 
careful  dealers  in  grain ;  while  an  agent  to  purchase  an  expensive 
and  intricate  engine  is  bound  to  exercise  the  caution  and  skill 
of  an  engineer. 

Reynolds  was  general  manager  of  the  San  Pedro  Lumber  Co.  and  it 
was  one  of  his  duties  to  cause  to  be  kept  regular  and  accurate  accounts  of 
the  San  Pedro  Lumber  Co.'s  business.  Such  accounts  were  not  kept  and 
the  San  Pedro  Lumber  Co.  suffered  losses  because  of  it.  Held,  Reynolds 
was  the  agent  of  the  San  Pedro  Lumber  Co.,  and  was  required  to  exercise 
reasonable  skill,  diligence,  and  care  in  the  performance  of  his  duties.  For 
his  failure  to  do  so  he  was  responsible  to  his  principal. 

—  San  Pedro  Lumber  Co.  v.  Reynolds,  121  Calif.  74. 

Fiduciary  Relation.  —  There  exists  between  the  principal  and 
his  agent  what  is  said  to  be  a  fiduciary  relation,  which  means 
that  their  relations  are  such  that  the  utmost  good  faith  is  re- 
quired in  their  dealings.  An  agent  cannot,  therefore,  acquire 
any  rights  that  are  contrary  to  the  interests  of  the  principal. 
He  must  not  act  for  both  the  principal  and  the  third  party  in  a 
transaction  without  their  consent. 


OBLIGATION  OF  AGENT  TO  PRINCIPAL  129 

Worden  was  appointed  the  Company's  agent  to  sell  a  herd  of  cattle 
and  horses.  The  agent  produced  a  purchaser  to  whom  a  sale  was  later 
made.  In  an  action  by  the  agent  to  recover  for  his  services  it  was  shown 
that  the  agent  had  acted  for  both  the  buyer  and  the  seller,  neither  of  whom 
knew  that  the  agent  was  acting  also  for  the  other.  The  court  held  that 
neither  party  was  liable  to  the  agent  for  his  services. 

—  Alta  Inv.  Co.  v.  Worden,  25  Colo.  215. 

This  rule  is  based  on  the  principle  that  no  one  can  serve  two 
masters. 

Neither  must  the  agent  use  his  position  or  authority  for  his 
own  benefit. 

Miles  was  employed  by  Bunker  to  buy  a  certain  horse  for  him  for  $80 
or  as  much  less  as  he  could,  and  was  to  have  $1  for  his  trouble.  Miles 
bought  the  horse  for  $72.50,  and  returned  to  Bunker  no  part  of  the  $80. 
The  court  allowed  Bunker  to  recover  the  balance  of  $7.50,  holding  that  the 
agent  could  not  make  a  profit  for  himself  out  of  the  transaction. 

■ —  Bunker  v.  Miles,  30  Maine  431. 

An  agent  authorized  to  sell  or  rent  will  not  be  permitted  to 
buy  or  lease  the  property  himself  without  the  principal's  consent. 

Kerfoot  owned  certain  land  and  employed  Hyman  to  sell  it  for  a  cer- 
tain amount.  Hyman  bought  it  himself  and  took  the  title  in  the  name  of 
a  third  party,  but  for  his  own  benefit  without  the  owner's  consent,  and  at 
the  same  time  had  a  part  of  it  sold  for  as  much  as  he  obtained  for  the 
whole  of  it  for  Kerfoot.  Held,  that  the  agent  must  account  to  Kerfoot 
for  the  excess  received,  and  the  remainder  not  sold  will  revert  to  the 
principal. — Kerfoot  v.  Hyman,  52  111.  512. 

Also  an  agent  commissioned  to  compromise  a  claim  cannot 
purchase  it  at  a  discount  and  then  enforce  it  in  full  against  the 
principal. 

The  agent  is  under  obligation  to  his  principal  to  render  a  true 
account  of  all  of  the  proceeds  and  profits  of  the  agency.  In  the 
absence  of  an  express  agreement  to  the  .contrary  the  agent  must 
render  an  accoimt  to  his  principal  upon  demand  or  within  a 
reasonable  time. 

Subagents.  —  Another  obligation  of  the  agent  to  his  princi- 
pal is  to  act  in  person,  except  when  authorized  either  by  his 
principal  or  by  established  custom  to  appoint  subagents.  The 
reason  for  this  is  obvious:  the  principal  employs  the  agent  be- 
cause of  his  confidence  and  trust  in  his  ability  and  honesty  to 
act  in  his  stead,  and  the  agent  appointed  cannot  delegate  to 
another  the  duty  or  trust  which  has  been  confided  to  him. 


I30  AGENCY 

Still,  an  agent  can  in  some  cases  appoint  subagents  to  per- 
form duties  which  do  not  involve  an  exercise  of  his  discretion, 
but  are  merely  mechanical  or  ministerial  acts. 

Penwick  was  employed  by  Bancroft  to  sell  a  piece  of  realty  and  to  fix  the 
price,  etc.  After  looking  over  the  property  he  employed  a  subagent  to  find 
a  purchaser,  and  this  subagent  did  find  such  a  purchaser  and  sold  the  prop- 
erty. It  was  held  that  the  agent  might  properly  appoint  such  a  subagent, 
as  there  was  no  discretion  placed  in  the  subagent,  and  Penwick  could  employ 
such  party  as  he  wished  to  help  him  in  carrying  out  the  agency. 

—  Renwick  v.  Bancroft,  56  Iowa  527, 

Sometimes,  from  the  nature  of  the  case,  it  is  implied  that 
the  agent  is  to  appoint  another  agent  for  his  principal.  In  that 
case  the  first  agent  is  relieved  from  liability  for  the  acts  of  the 
third  party  if  he  himself  uses  care  and  discretion  in  his  appoint- 
ment; whereas  if  he  but  employs  a  subagent,  he  is  personally 
liable  to  the  principal  for  the  acts  of  the  subagent  to  the  same 
extent  precisely  that  he  would  be  in  case  they  were  his  own  acts. 

The  most  common  illustration  of  this  point  is  the  case  where 
a  holder  of  commercial  paper,  payable  at  another  place,  places 
it  in  the  hands  of  his  home  bank  for  collection.  In  such  cases 
it  is  generally  held  that  the  home  bank  has  authority,  implied 
from  the  nature  of  the  transaction  and  the  usual  course  of  busi- 
ness, to  appoint  a  bank  at  the  place  of  payment  of  the  paper 
agent  for  the  principal,  and  the  home  bank  is  not  liable  for  the 
negligence  or  default  of  the  other  agent  if  due  care  was  usedv 
in  the  selection. 

Planters  &  Farmers  Nat'l  Bank  sent  for  collection  to  First  Nat'l 
Bank  in  Wilmington,  N.  C,  a  draft  in  Planters  &  Farmers  Nat'l  Bank's 
favor,  drawn  on  one  Adams  residing  in  Washington,  D.  C.  First  Nat'l 
Bank  sent  the  draft  to  a  firm  in  Washington  for  collection,  the  firm  then 
being  in  good  standing  and  Credit  and  regarded  as  solvent.  The  firm  col- 
lected the  money  and  failed  before  turning  it  over  to  the  First  Nat'l  Bank. 
It  was  held  that  where  the  business  obviously  or  reasonably  cannot  be  done 
by  an  agent  except  through  a  subagent,  or  where  there  is  a  known  and 
established  usage  of  substitution,  then  the  principal  has  authorized  such 
substitution  and  the  agent  is  not  liable  for  the  failure  of  the  substitute  if 
care  has  been  exercised  in  the  selection. 

—  Planters  b'  Farmers  Nat'l  Bank  v.  First  Nat'l  Bank,  75  N.  C.  534. 

Gratuitous  Agent.  —  It  may  be  well  to  note  also  the  legal 
relation  of  the  agent  who  undertakes  to  perform  some  service 
for  the  principal  without  compensation. 


OBLIGATION  OF  AGENT  TO  PRINCIPAL  131 

In  such  a  case  the  promise  being  without  consideration  is 
not  enforceable,  and  the  agent  cannot  be  held  liable  for  neglect- 
ing or  refusing  to  perform. 

Goods  were  sent  by  Vickery  to  Lanier  with  a  request  that  they  be 
insured.  Lanier  said  he  would  procure  insurance,  but  did  not  do  so.  No 
offer  was  made  to  pay  Lanier  for  his  services.  Held,  there  was  no  agree- 
ment between  the  parties,  as  there  was  no  consideration,  and  Lanier  was 
not  liable  for  his  failure  to  perform.  —  Vickery  v.  Lanier,  58  Ky.  133. 

But  if  the  agent  enters  upon  the  performance  of  the  under- 
taking, he  is  bound  to  exercise  skill  and  care  in  what  he  does. 

A  party  undertook  voluntarily  and  gratuitously  to  invest  money  for 
another.  It  was  held  that  in  such  a  case  the  gratuitous  agent  must  use 
due  diligence  and  exercise  proper  caution  or  he  will  be  liable,  and  if  he  is 
given  positive  instructions,  he  will  be  liable  if  he  disregards  them. 

—  Williams  v.  Higgins,  30  Md.  404. 

The  question  of  gratuitous  agent  often  comes  up  in  the  case 
of  bank  directors,  who  fill  their  offices  without  compensation. 

If  bank  directors  are  guilty  of  negligence  in  permitting  their  bank  to 
be  held  out  to  the  public  as  solvent,  when  in  fact  it  is  insolvent,  and  thereby 
induce  parties  to  deposit  their  money  there  and  it  is  lost,  such  depositors 
may  recover  from  the  directors,  as  they  are  bound  to  exercise  care  and 
diligence  in  their  offices. — Delano  v.  Case,  121  111.  247. 


QUESTIONS 

1.  What  is  the  principal  obligation  of  an  agent  to  his  principal? 

2.  Under  what  conditions  is  the  agent  liab'e  for  damage  suffered  by 
his  principal? 

3.  What  prudence  and  skill  is  an  agent  expected  to  show  in  the  dis- 
charge of  his  duties  as  agent? 

4.  What  is  the  meaning  of  fiduciary  relation? 

5.  Can  an  agent  use  his  position  for  his  own  benefit? 

6.  Who  are  subagents?     Give  an  example  of  a  subagent. 

7.  Under  what  conditions  has  an  agent  the  right  to  appoint  some 
one  else  to  do  the  work  for  him? 

8.  Is  the  gratuitous  agent  liable  for  neglecting  or  refusing  to  do 
what  he  agreed  to  do? 

9.  What  is  the  responsibihty  of  a  gratuitous  agent  who  attempts 
to  perform? 

10.  To  whom  do  the  profits  made  by  an  agent  belong? 

11.  If  an  agent  disobeys  instructions,  what  can  the  principal  do? 

12.  Can  an  agent  act  for  both  parties  (principal  and  third  party)? 
Give  reasons. 


132  AGENCY 

5.   OBLIGATIONS  OF  PRINCIPAL  AND  AGENT  TO  THIRD 
PARTY,  AND   OF  THIRD  PARTY  TO  PRINCIPAL 

Obligation  of  Principal  to  Third  Party.  —  The  main  object 
of  agency  is  to  effect  a  contractual  relation  between  the  princi- 
pal and  the  third  party.  The  identity  of  the  principal  may  be 
disclosed  or  it  may  be  withheld.  In  the  case  of  either  a  dis- 
closed or  an  undisclosed  principal,  he  is  bound  by  such  acts  of 
the  agent  as  are  within  the  actual  or  apparent  scope  of  his 
authority. 

The  difficult  question  then  is  to  determine  what  is  the  scope 
of  his  authority.  If  the  principal  clothes  the  agent  with  ap- 
parent authority  to  do  an  act,  the  principal  is  bound,  although 
the  agent  had  private  instruction  to  the  contrary,  or  had  a 
limit  put  upon  this  authority. 

A  doctor  employs  an  agent  to  buy  for  him  a  particular  horse.  He 
has  no  apparent  authority  to  buy  a  team  or  any  other  horse.  Should  a 
stock  dealer  employ  an  agent  to  buy  horses  for  him,  the  agent  has  apparent 
authority  to  buy  a  team,  although  he  may  have  had  private  instructions 
to  the  contrary.    The  one  is  clearly  a  special  and  the  other  a  general  agent. 

* 

It  seems  settled  that  when  the  agent  has  apparent  authority 

the  principal  is  bound.  It  is  only  required  in  such  a  case  that 
the  person  dealing  with  the  agent,  acting  with  average  prudence 
and  in  good  faith,  is  justified  in  believing  that  the  agent  pos- 
sesses the  necessary  authority. 

Notice  to  Agent.  —  It  is  the  rule  that  notice  to  the  agent  of 
anything  within  the  scope  of  the  agency  is  notice  also  to  the 
principal.  And  the  principal  is  chargeable  with  knowledge  of 
all  the  facts  that  have  been  brought  to  his  agent's  attention  in 
the  transaction  in  which  the  agent  is  acting  for  the  principal. 

If  this  were  otherwise,  the  principal  would  be  in  a  position 
to  claim  ignorance  whenever  he  might' wish  to  do  so,  and  there- 
fore would  be  in  a  better  position  than  if  he  dealt  with  the  third 
party  direct. 

Obligation  of  Agent  to  Third  Party.  —  When  an  agent  makes 
a  contract  on  behalf  of  his  principal,  he  may  in  certain  cases 
bind  himself.  If  he  holds  himself  out  as  having  authority  to 
act  for  a  principal  in  a  transaction  in  which  he  has  no  such 


OBLIGATIONS  TO  THIRD  PARTY  133 

authority,  he  is  Hable  to  the  third  party  for  the  damages  suf- 
fered, not  on  the  contract  which  he  purported  to  make  for  the 
principal,  but  for  breach  of  his  implied  warranty  of  authority. 

Pitcairn,  the  agent  for  an  insurance  company,  obtained  and  delivered 
to  Kroeger  a  policy  of  insurance  on  his  store,  containing  a  clause  that  no 
petroleum  should  be  kept  on  the  premises.  Kroeger  told  Pitcairn  it  was 
necessary  to  keep  a  little,  and  Pitcairn  assured  him  if  he  kept  only  a  barrel 
it  need  not  be  noted  in  the  policy,  and  was  all  right.  The  store  burned, 
and  Kroeger  could  not  recover  because  he  had  a  barrel  of  petroleum.  Held, 
Pitcairn,  the  agent,  was  liable,  as  he  gave  positive  assurance  in  excess  of 
his  authority. — Kroeger  v.  Pitcairn,  loi  Pa.  State  311. 

The  agent  is  also  presumed  to  represent  not  only  that  he 
has  authority,  but  that  his  principal  was  competent  to  give 
such  authority. 

In  the  case  in  which  there  is  no  real  principal,  but  the  one 
so  represented  is  fictitious,  the  agent  himself  becomes  the  princi- 
pal, and  is  liable  as  such. 

It  was  held,  an  unincorporated  organization  cannot  be  a  party  to  a 
contract,  and  persons  contracting  in  the  name  of  such  an  organization  are 
themselves  personally  liable  either  as  being  themselves  in  fact  principals, 
or  as  holding  themselves  out  as  agents  for  a  principal  which  never  in  law 
existed.  —  Lewis  v.  Tilton,  64  Iowa  220.  • 

In  some  instances,  the  agent  expressly  pledges  his  credit, 
and  of  course  in  such  cases  he  is  liable. 

Obligation  of  Third  Party  to  Principal.  —  It  is  clear  that 
the  third  party  is  liable  to  the  principal  for  contracts  entered 
into  with  the  agent,  within  his  authority,  or  which  are  subse- 
quently ratified  by  the  principal. 

The  third  party  is  also  liable  to  the  principal  for  moneys 
or  property  obtained  from  the  agent  by  duress  or  fraud;  hence, 
if  an  agent  is  compelled  to  pay  illegal  charges  to  protect  his 
principal's  interest  the  principal  may  recover  of  the  third  party. 

The  third  party  may  also  be  liable  to  the  principal  for  fraud 
or  wrong,  or  for  collusion  with  the  agent  to  injure  the  principal. 

It  was  the  duty  of  the  manager  of  a  city  gas  works  to  obtain  and 
recommend  bids  for  coal  and  supplies.  Lever,  a  coal  dealer,  bribed  the 
manager  to  recommend  his  bid,  and  added  the  price  of  the  bribe  to  the 
bid.  In  an  action  against  them,  it  was  held  that  the  Mayor,  for  the  city, 
could  recover  the  damages  from  the  agent  who  had  accepted  the  bribe,  or 
from  Lever  who  had  given  it.  They  were  joint  wrongdoers,  and  could  be 
held  jointly  or  severally.  —  Mayor  v.  Lever,  1891,  i  Q.B.  (Eng.)  168. 


134  AGENCY 

A  third  party  is  also  liable  for  unlawfully  interfering  with  the 
agent  in  the  performance  of  his  duties  as  agent. 

It  was  held,  that  maliciously  to  cause  the  arrest  of  the  Railroad  Com- 
pany's engineer  while  running  a  train,  and  then  to  delay  the  train  and 
thereby  damage  the  company,  is  actionable,  and  the  railroad  company 
can  recover  for  such  damages  from  the  person  so  causing  the  arrest. 

—  Railroad  Co.  v.  Hunt,  55  Vt.  570. 

QUESTIONS 

1.  What  is  the  main  object  of  agency? 

2.  What  is  meant  by  "  undisclosed  principal  "? 

3.  What  acts  of  an  agent  bind  the  principal? 

4.  What  is  meant  by  "scope  of  authority"? 

5.  Is  the  principal  bound  where  the  agent  had  apparent  authority? 
Explain. 

6.  What  is  the  rule  as  to  notice  to  the  agent?     Why? 

7.  When  is  an  agent  liable  to  a  third  party?     Give  an  example. 

8.  What  is  the  obligation  of  the  third  party  to  the  principal? 


6.  LIABILITY   OF   PRINCIPAL   FOR   TORTS   OR   WRONGS 

OF  AGENT 

General  Rule.  —  The  principal  is  liable  for  the  contractual 
obligations  of  his  agent  in  his  behalf,  and  there  are  various  ways 
in  which  he  can  be  rendered  liable  by  the  agent  for  the  agent's 
torts  or  wrongful  acts. 

The  rule  is  that  the  principal  is  liable  for  the  wrongs  com- 
mitted by  the  agent  in  the  course  of  his  employment  and  for 
the  principal's  benefit. 

This  is  obviously  true  where  the  principal  commands  or  rati- 
fies the  act,  and  we  find  that  it  is  also  true  where  the  principal 
neither  ratifies  nor  commands  it.  The  law  considers  that  when 
a  person  chooses  to  conduct  his  affairs  through  another,  he  must 
see  that  they  are  managed  with  due  regard  for  the  rights  and 
safety  of  others. 

A  principal  was  held  liable  for  the  tort  of  his  agent  in  selling  to  Lutz 
a  diseased  horse,  which  ran  with  other  horses  of  Lutz  and  caused  several 
of  them  to  die.  —  Lutz  v.  Forbes,  13  La.  Annual  609. 

Fraud  and  Negligence.  —  Fraud  is  one  of  the  wrongs  of 
frequent  occurrence  in  the  relation  of  agency,  the  agent  having 


LIABILITY  OF  PRINCIPAL  FOR  TORTS  135 

made  false  and  fraudulent  representations  in  carrying  out  his 
principal's  business.  It  is  the  general  holding  that  the  princi- 
pal is  liable  for  the  agent's  fraud  in  the  course  of  the  principal's 
business  and  for  his  benefit. 

The  negligence  of  the  agent  is  among  the  wrongs  for  which 
the  principal  is  liable,  if  such  negligence  was  committed  in  the 
ordinary  discharge  of  the  agency. 

An  agent  of  Shaw  hired  a  driver,  wagon,  and  team  from  Ewing,  and 
through  the  agent's  negligence  one  of  the  horses  was  drowned.  Held,  the 
principal  was  liable  for  the  damages  resulting  from  the  negligent  act  of  his 
agent.  —  Ewing  v.  Shaw,  83  Ala.  ^,7,7,. 

When  the  wrong  is  committed  by  the  agent  in  the  course  of 
his  employment,  and  even  to  benefit  himself  personally  and  not 
his  principal,  some  authorities  hold  that  the  principal  is  never- 
theless liable. 

An  engineer  willfully  and  unnecessarily  blew  the  whistle  and  frightened 
a  horse.  Held,  that  the  railway  company  was  liable  for  acts  done  by  its 
engineer  maliciously,  wantonly,  and  willfully  while  in  the  exercise  of  his 
duties,  whether  in  the  course  of  his  employment  or  not. 

—  Cohh  V.  Railway  Co.,  37  S.  C.  194. 

Others  hold  that  the  principal  is  not  liable. 

A  railway  engineer  intentionally  and  wantonly  backed  his  engine 
toward  a  street  car  that  was  crossing  the  track,  with  the  simple  intent  of 
frightening  the  passengers,  without  colliding  with  the  car.  As  a  result 
Stephenson,  a  passenger,  was  frightened  and  jumped  from  the  car  and  was 
injured.  Held,  that  the  act  of  the  engineer  was  without  any  reference  to 
the  service  for  which  he  was  employed  and  not  for  the  purpose  of  perform- 
ing his  employer's  work,  and  that  the  principal  was  not  responsible. 

—  Stephenson  v.  Southern  Pacific  Co.,  93  Calif.  558. 

More  recent  court  decisions  show  an  inclination  to  hold 
the  principal  liable  under  such  circumstances. 

Liability  for  Malicious  Wrongs.  —  But  it  is  held  that  the 
principal  is  not  liable  for  the  malicious  wrongs  or  crimes  of  the 
agent,  unless  he  expressly  authorized  the  same.  There  is  an 
exception  to  this  in  the  case  of  laws  or  statutes  which  are  said 
to  be  in  the  nature  of  police  regulations  designed  to  promote 
the  safety  and  health  of  the  community.  In  cases  of  this  kind 
the  principal  is  liable,  even  though  the  agent  act  directly  con- 
trary to  instructions  and  without  his  knowledge  and  consent. 


136  AGENCY 

The  laws  regulating  the  speed  of  automobiles  on  the  public 
roads,  and  those  prohibiting  the  selling  of  tobacco  to  children, 
may  be  mentioned  as  examples  under  this  head. 

QUESTIONS 

1.  What  is  the  rule  as  to  a  principal's  liability  for  the  agent's  torts  or 
wrongs? 

2.  Give  an  example  of  an  agent's  tort  for  which  the  principal  would 
be  liable;  one  for  which  the  principal  would  not  be  responsible. 

3.  Are  authorities  agreed  on  the  liability  of  the   principal  for  an 
agent's  wrongs?     Explain. 

4.  Is  the  principal  liable  for  the  "  malicious  wrongs  "  of  an  agent? 


7.  TERMINATION  OF  THE   RELATION  OF  PRINCIPAL 
AND   AGENT 

The  agency  may  be  terminated  by  limitation,  by  acts  of  the 
parties,  or  by  a  change  in  the  condition  of  the  parties. 

Termination  by  Limitation.  —  If  the  contract  of  agency  is 
by  its  terms  to  continue  for  but  a  limited  time,  the  agency 
terminates  when  the  time  expires;  or  if  the  particular  business 
for  which  the  agency  was  created  has  been  completed,  the 
agency  is  terminated. 

An  agent  was  employed  to  negotiate  for  the  purchase  of  certain  property. 
He  obtained  the  contract  for  the  conveyance,  the  first  payment  was  made, 
and  the  agent  was  paid  for  his  services.  Held,  the  agency  was  then  termi- 
nated, as  the  object  for  which  the  agency  was  created  had  been  accomplished. 
Here  the  agent,  after  he  was  paid  for  his  services,  bought  in  the  property 
at  tax  sale,  and  the  principal  sought  to  set  it  aside  on  the  ground  that  he 
was  still  his  agent,  but  as  the  agency  was  held  to  be  terminated,  the  court 
refused  to  interfere.  —  Moore  v.  Stone,  40  Iowa  259. 

Termination  by  Act  of  the  Parties.  —  Under  certain  con- 
ditions either  party  may  terminate  the  relation.  This  may  be 
done  by  mutual  agreement,  by  the  principal  revoking  the  agent's 
authority,  or  by  the  agent  renouncing  the  agency. 

Since  the  principal  appoints  the  agent,  and  the  relation  is 
one  of  confidence  for  his  own  protection,  he  has  the  power  to 
terminate  it  at  will.  It  is  therefore  the  general  rule  that  the 
principal  may  terminate  the  agent's  authority  at  any  time  and 
with  or  without  good  cause. 


TERMINATION  OF  AGENCY  137 

It  may  be  well  to  note  here  the  distinction  between  the 
power  to  terminate  the  agency  and  the  right  to  terminate  it. 
The  principal  generally  has  the  power,  but  if  it  violates  an 
agreement  with  the  agent,  he  does  not  have  the  right  to  so 
terminate  the  agency,  and  he  is  therefore  liable  to  the  agent  for 
damages. 

There  was  a  written  contract  for  one  year,  fixing  the  agent's  compensa- 
tion. This  was  renewed  the  next  year,  and  from  then  on  was  lived  up  to, 
but  nothing  was  said  about  the  agreement.  Held,  that  there  was  a  tacit 
renewal  from  year  to  year,  and  that  the  principal  could  not,  during  the 
year,  deprive  the  agent  of  his  salary  before  the  expiration  of  the  year. 
Though  the  power  of  revocation  existed,  the  right  to  revoke  did  not  exist. 

—  Standard  Oil  Co.  v.  Gilbert,  84  Ga.  714. 

The  revocation  of  the  agency  by  the  principal  need  not  be 
made  in  any  formal  way,  but  may  be  by  oral  instructions  or  by 
written  notice.  In  some  cases  it  may  be  implied  by  the  condi- 
tions; as,  when  a  principal  gives  an  agent  authority  to  sell  his 
house,  and  before  the  agency  is  executed  it  is  destroyed  by  fire, 
in  which  case  a  revocation  must  be  implied. 

A  revocation  is  binding  only  upon  those  who  have  notice  of 
it.  The  principal  must  therefore  not  only  give  notice  to  the 
agent  but  to  those  who  upon  the  strength  of  the  previous  au- 
thority are  likely  to  deal  with  him;  otherwise  he  may  be  held 
for  the  acts  of  the  agent  after  the  revocation. 

An  Agency  Coupled  with  an  Interest.  —  There  is  a  class  of 
cases  in  which  the  principal  has  no  authority  to  revoke  the 
agency.  This  is  where,  as  it  is  said,  the  agency  is  coupled  with 
an  interest;  as  when  the  agent  has  an  interest  in  the  subject 
matter  of  the  agency  by  way  of  security.  For  example,  when 
a  person  has  possession  of  property  with  power  to  sell  and 
apply  the  proceeds  to  the  payment  of  a  debt  due  the  agent, 
such  a  case  constitutes  an  agency  coupled  with  an  interest. 

Graves,  wishing  to  sell  his  house  and  lot,  as  he  has  to  move  to  another 
place  on  account  of  his  health,  entered  into  an  agreement  with  a  local  real 
estate  agent,  in  whose  hands  he  put  his  house  for  sale,  whereby  the  agent 
advanced  him  $1000,  which  amount  he  is  to  deduct  from  the  sale  price 
when  the  house  is  sold.  Graves  cannot,  without  the  agent's  consent,  re- 
voke this  agreement,  as  the  agent  has  an  agency  coupled  with  an  interest. 

As  to  the  rights  of  the  agent  to  renounce  the  agency,  it 
seems  that  he  also  has  the  power  but  not  the  right  to  renounce 


138  AGENCY 

at  will.  And  the  renunciation  may  be  either  express  or  implied; 
as,  if  the  agent  abandons  his  work,  the  principal  may  consider 
the  agency  as  renounced. 

Change  in  Condition  of  the  Parties.  —  The  agency  may  also 
terminate  by  a  change  in  the  condition  of  the  parties  caused  by 
death,  insanity,  bankruptcy,  marriage,  and  war. 

Death.  —  The  death  of  either  the  principal  or  the   agent 

terminates  the  agency,  and  it  is  no  longer  binding  on  the  estate 

of  the  deceased  or  the  survivor.    And  in  this  case  no  notice  of 

the  termination  need  be  given  to  third  parties.     The  agency 

terminates  upon  the  principal's  death,  and  any  contract  made 

thereafter  by  the  agent  acting  for  the  principal  is  a  nullity. 

An  agent  appointed  by  one  Wiley  commenced  an  action  against  Mer- 
rett  and  conveyed  land  to  and  received  money  from  him.  It  developed 
that,  unknown  to  any  of  the  parties,  Wiley  had  died  before  the  commence- 
ment of  the  suit.  Held,  that  Wiley's  death  revoked  the  agency  and  the 
conveyance  by  the  agent  and  the  payments  to  him  were  both  void. 

—  Clayton  v.  Merrett,  52  Miss.  353. 

Insanity.  —  If  either  the  principal  or  the  agent  become  in- 
sane, the  effect  is  to  terminate  the  agency,  as  the  principal  is 
no  longer  competent  to  enter  into  a  contract,  and  the  agent,  if 
insane,  is  not  competent  to  carry  out  the  instructions  of  the 
principal.  But  if  the  principal  has  not  been  legally  declared 
insane,  persons  dealing  with  the  agent  in  ignorance  of  his  in- 
sanity are  protected. 

Any  other  cause  that  may  render  the  agent  incompetent 
to  carry  out  the  agency  will  also  terminate  the  agency,  as  the 
illness  of  the  agent  or  his  imprisonment. 

Bankruptcy.  —  The  mere  insolvency  of  either  party  does  not 
affect  the  agency,  but  it  will  be  terminated  when  either  party 
becomes  technically  bankrupt,  because  when  a  party  becomes  a 
bankrupt  his  property  passes  out  of  his  hands  and  he  is  unable 
to  carry  out  any  contract  in  reference  to  it.  The  above  rule 
does  not  apply,  however,  when  the  agency  is  coupled  with  an 
interest.  In  the  case  of  the  bankruptcy  of  the  agent  his  au- 
thority ceases  except  to  perform  some  formal  act  not  involving 
the  transfer  of  any  property. 

Marriage.  —  Under  the  common  law  many  restrictions  were 
placed  about  a  married  woman,  the  control  o!  her  property  pass- 


TERMINATION  OF  AGENCY  139 

ing  to  her  husband.  Consequently,  upon  her  marriage,  any 
contract  of  agency  in  which  she  was  principal  was  dissolved,  as 
she  no  longer  had  the  power  to  deal  with  her  own  property. 
But  every  state  has  passed  laws  enlarging  the  rights  of  married 
women,  in  most  instances  giving  them  fullpower  to  own  and 
manage  their  property  and  to  carry  on  their  own  separate 
business.  The  result  is  that  a  married  woman  may  appoint 
agents,  and  the  act  of  marrying  does  not  affect  her  status  in  a 
business  way  and  therefore  has  no  effect  on  the  relation  of 
principal  and  agent,  nor  does  it  dissolve  an  agency  then  existing. 
War.  —  It  is  the  general  law  in  this  country  that  the  ex- 
istence of  a  state  of  war  between  the  country  of  the  principal 
and  that  of  the  agent  terminates  the  agency.  This  is  because 
of  the  rule  prohibiting  all  trading  or  commercial  intercourse  be- 
tween two  countries  at  war. 

QUESTIONS 

1.  Mention  three  ways  by  which  an  agency  may  be  terminated. 

2.  How  may  an  agency  be  terminated  by  limitation? 

3.  How  may  an  agency  be  terminated  by  acts  of  the  parties? 

4.  Distinguish  between  the  power  to  terminate  an  agency  and  the 
right  to  terminate  it. 

5.  How  may  an  agency  be  revoked? 

6.  On  whom  is  the  revocation  binding? 

7.  Give  an  example  of  an  irrevocable  agency. 

8.  Has  the  agent  the  right  to  renounce  the  agency  at  will? 

9.  What  change  in  the  condition  of  the  parties  will  terminate  the 
agency? 

10.  In  what  cases  is  it  necessary  to  give  notice  to  third  parties  of  the 
termination  of  an  agency? 

11.  Does  mere  insolvency  of  either  the  principal  or  the  agent  termi- 
nate the  agency? 

12.  What  exception  is  there  to  the  rule  that  bankruptcy  terminates 
the  agency? 

13.  What  are  the  rights  of  married  women  with  reference  to  appoint- 
ing agents? 

14.  How  does  war  affect  an  agency  contract  between  citizens  of  two 
countries  at  war? 

15.  An  agent  was  employed   to  sell   an   automobile.    In   a   fire   the 
automobile  was  destroyed.     Did  this  terminate  the  agency? 


I40  '  AGENCY 


IMPORTANT   POINTS 

Agency  is  a  subdivision  of  contracts  and  is  regulated  by  the  laws 
of  contracts. 

Agency  is  the  legal  relation  existing  between  a  principal  and 
an  agent,  and  is  usually  created  by  agreement. 

Only  one  who  is  competent  to  contract  for  himself  can  act  as 
principal. 

Any  one  who  is  capable  of  following  instructions  can  act  as  agent. 

The  principal  difference  between  special  agent  and  general  agent 
's  the  extent  of  authority. 

The  general  assumption  is  that  an  agent  is  a  personal  repre- 
sentative. 

Any  one  who  acts  for  another  without  pay  is  not  liable  for  failure. 

That  an  agent  may  make  contracts  under  seal,  his  appointment 
must  be  under  seal. 

The  formal  way  of  appointing  an  agent  is  by  power  of  attorney. 

Ratification  creates  an  agency  as  well  as  agreement. 

Where  an  agency  is  created  by  necessity,  the  principal  is  bound. 

The  obligations  of  the  principal  to  the  agent  include  compensa- 
tion, reimbursement,  indemnification,  and  protection. 

The  obligations  of  the  agent  to  the  principal  include  obedience, 
loyalty,  judgment,  skill,  and  honesty. 

The  agent  cannot  appoint  another  to  do  what  he  is  expected  to  do. 

Subagents  may  be  appointed  where  circumstances  require  it. 

An  undisclosed  principal  is  bound  by  the  acts  of  his  agent  the 
same  as  a  disclosed  principal. 

The  principal  is  bound  by  the  acts  of  his  agent  so  long  as  the 
agent  acts  within  the  scope  of  his  authority. 

A  principal  is  bound  when  the  agent  acts  within  his  apparent 
authority. 

Notice  to  the  agent  concerning  agency  matters  is  notice  to  the 
principal. 

When  an  agent  exceeds  his  authority  he  is  personally  liable; 
except  that  a  public  agent  who  exceeds  his  authority  is  not  liable. 

A  third  party  is  liable  to  an  undisclosed  piincipal  when  the  agent 
acts  within  his  authority. 

A  third  party  is  liable  for  unlawfully  interfering  with  an  agent  in 
the  performance  of  his  duties. 

A  principal  is  usually  liable  for  torts  or  wrongs  committed  by  an 
agent  in  his  behalf. 

A  principal  is  liable  for  fraud  of  the  agent  practiced  in  the  course 
of  the  principal's  business  and  for  his  benefit. 


TEST  QUESTIONS  141 

The  principal  is  usually  not  liable  for  malicious  wrongs  committed 
by  the  agent. 

When  an  agency  is  terminated,  in  every  case  except  death, 
notice  should  be  sent  to  all  parties  who  have  dealings  with  the  agent. 

Legally,  the  agent's  acts  are  considered  the  acts  of  the  principal. 

Through  the  medium  of  the  agent  contractual  relations  are  es- 
tablished between  his  principal  and  a  third  party. 

Agencies  may  be  joint,  or  joint  and  several. 

The  principal  may,  at  any  time,  revoke  the  authority  of  the  agent. 

The  agent  may,  at  any  time,  renounce  the  contract  of  agency. 

An  agency  coupled  with  an  interest  cannot  be  terminated  by  the 
principal. 

The  agent  must  make  accounting  to  his  principal  of  funds  be- 
longing to  the  agency. 

An  agent  has  no  legal  right  to  act  for  himself  contrary  to  his  prin- 
cipal's interest. 

An  agent  cannot  represent  both  parties  to  a  transaction  without 
the  knowledge  of  both. 

An  agent  warrants  existence  and  competency  of  his  principal. 

State  of  war  between  the  respective  countries  of  the  parties  to 
an  agency  terminates  the  relationship  during  the  war. 

A  contract  made  by  an  agent  subsequent  to  the  death  of  his 
principal  is  void. 


TEST    QUESTIONS 

1.  Why  does  it  concern  a  merchant  who  sells  a  suit  of  clothes  to  a 
minor  on  credit  whether  the  minor  is  acting  as  agent  for  his  father  or  acting 
for  himself? 

2.  How  can  you  tell  whether  an  agent  is  acting  as  a  general  agent 
or  as  a  special  agent? 

3.  Are  there  any  reasons  why  a  written  appointment  of  agency  is 
more  satisfactory  than  an  oral  appointment? 

4.  Can  a  married  woman  bind  her  husband  by  any  contract  pertain- 
ing to  household  affairs? 

5.  Waters  acts  for  Brown  without  authority.  What  courses  are  open 
to  Brown? 

6.  Is  there  any  difference  between  the  obligations  to  the  principal 
of  a  general  agent  and  of  a  special  agent? 

7.  What  has  a  third  party  who  deals  with  an  agent  a  right  to  know? 

8.  In  all  contracts  made  through  an  agent,  who  are  the  real  parties? 


142  AGENCY 

9.  Under  what  circumstances  would  an  agent  have  a  claim  for  dam- 
ages against  his  principal? 

10.  What  is  meant  by  the  agency  being  terminated  automatically? 

11.  What  is  the  effect  where  an  agent  has  an  interest  in  the  subject 
matter? 

12.  Hooker  gave  Mason  authority  to  buy  grain  and  pay  a  certain 
price  for  it.  He  pays  more.  Under  what  circumstances  would  the  principal 
be  bound? 

13.  A  merchant  directed  his  salesman  not  to  sell  a  certain  article  from 
stock.  The  salesman,  nevertheless,  sold  the  article.  Has  the  merchant  a 
right  to  revoke  the  sale? 

14.  An  agent,  although  acting  for  a  principal,  made  a  contract  with 
a  third  party  in  his  own  name.    Is  the  principal  liable? 

15.  A  purchasing  agent  bought  supplies  after  the  death  of  his  princi- 
pal.    Is  the  contract  binding? 

16.  Grant  instructed  Bowers  to  sell  his  automobile  for  $600.  Bowers 
sold  it  for  $750.     To  whom  does  the  $150  belong? 

17.  What  is  the  meaning  of  the  terms  "subsequent  ratification,"  and 
"prior  authority"? 

18.  What  is  the  essential  difference  between  the  power  and  the  right 
of  an  agent  to  act? 

19.  Has  an  agent  a  right  to  delegate  authority  or  power  to  some  one 
else? 

20.  Explain  the  meaning  of  the  statement,  "A  principal  who  accepts 
the  benefits  cannot  refuse  to  be  bound." 

CASE   PROBLEMS 

Give  the  decision  and  the  principle  of  law  involved  in  each  case. 
^  I.   Hadden  was  employed  by  a  railroad  company  as  a  local  ticket 

agent.  He  contracted  with  Bard,  a  carpenter,  to  build  a  partition  in  the 
waiting  room  of  the  station.  The  carpenter  completed  the  partition  and 
sent  the  bill  to  the  railroad  company's  main  office.  The  company  refused 
to  pay  the  bill,  claiming  the  agent  had  no  authority  to  have  this  work 
done.    Bard  takes  action  against  the  agent.    Can  he  recover?    Explain. 

2.  Morton  was  elected  to  the  city  council  from  his  district.  Very 
soon  after  his  election  he  contracted  with  Green,  a  local  contractor,  to 
pave  a  street  in  his  district.  The  contractor  did  the  work  and  presented 
his  bill  to  the  city  council.  The  council  refused  to  honor  the  bill  and  Green 
brought  action  against  Morton.    Can  he  recover?    Explain. 


CASE  PROBLEMS  143 

3.  A  maid,  employed  by  Mrs.  Blain,  had  been  allowed  to  order  pro- 
visions from  local  dealers  for  Mrs.  Blain's  use  in  the  household.  On  one 
occasion,  the  maid  ordered  a  quantity  of  provisions  which  she  appropri- 
ated for  her  own  use.  Mr.  Blain  refused  to  pay  the  bill  and  the  dealer 
brought  action  to  recover.     Can  he  succeed? 

4.  Brown  and  Co.  appointed  one  Cary,  who  was  but  nineteen  years 
old,  as  their  agent  to  buy  certain  goods  for  them.  Later  they  refused  to 
take  the  goods,  setting  up  that  the  agent  was  an  infant  and  the  contract 
could  not  be  enforced.    Was  this  a  good  defense  to  the  contract? 

5.  Wright,  a  farmer,  is  on  his  way  to  town  and  Young,  his  neighbor, 
asks  him  to  bring  back  for  him  a  wheel  for  his  mowing  machine,  which  has 
been  broken.  Wright  agrees  to  do  this  without  any  compensation.  Wright 
forgets  to  obtain  the  wheel  and  returns  without  it.  Young  is  unable  to 
proceed  with  his  work  and  sues  Wright  for  damages.  Can  he  recover? 

6.  The  Brown  Medicine  Co.,  by  oral  agreement,  employ  Hartman, 
who  is  an  experienced  agent,  to  travel  for  them,  advertising  and  selling 
their  medicines.  By  their  agreement  he  is  to  travel  in  every  state  in  the 
Union  and  is  to  spend  not  less  than  two  weeks  in  each  state.  Hartman, 
before  commencing  his  work,  obtains  a  better  offer  elsewhere,  and  the  com- 
pany sue  him  for  breaking  the  contract.     Can  they  recover? 

7.  An  agent  was  authorized  to  sell  a  car  of  coal  for  his  principal  at 
$6  a  ton.  Contrary  to  his  authority  he  sold  it  for  $5  per  ton,  and  received 
$120  down.  The  principal  accepted  the  $120  and  delivered  20  tons  of 
coal,  then  refused  to  deliver  more  until  the  full  price  of  $6  a  ton  was  paid. 
Could  the  principal  refuse  to  deliver  the  balance  under  the  contract? 

8.  Blum  represented  himself  as  Weinberg's  agent  but  had  not  been  so 
appointed.  Without  authority  he  made  a  contract  with  Loeb  in  Wein- 
berg's name  and  in  negotiating  the  contract  spent  $500  for  traveling  ex- 
penses. Weinberg  agreed  to  carry  out  the  contract.  Can  Blum  recover 
for  his  services  and  expenses  and  if  so  how  much? 

9.  Bown  &  Co.,  through  the  Merchants  Bank  of  Denver,  draw  on 
S.  P.  Kendall,  merchant,  of  New  York.  The  Merchants  Bank  forward 
the  draft  to  their  correspondent,  the  Commercial  National  Bank  of  New 
York.  This  bank  negligently  fails  to  present  the  draft  for  one  week,  and 
in  the  meantime  S.  P.  Kendall  becomes  insolvent.  Bown  &  Co.  sue  the 
Merchants  Bank  of  Denver.     Can  they  recover? 

10.  The  American  Bicycle  Co.  opened  a  store  in  Buffalo  and  placed 
Hunt  there  in  charge  of  the  business.  He  employed  Harvey  as  head  clerk 
at  $40  per  week.    Hunt  was  expressly  instructed  by  the  company  not  to 


144  AGENCY 

pay  any  employee  over  $30  per  week.    Harvey  worked  several  weeks  and 
sued  the  company  for  his  wages.     Could  he  recover? 

11.  Darrow  is  driving  on  the  city  streets,  and  through  the  negligence 
and  carelessness  of  the  street  car  motorman  he  is  run  into  and  injured.  Can 
Darrow  recover  of  the  street  car  company? 

12.  An  agent,  without  any  authority  so  to  do,  accepts  a  bill  of  exchange 
in  the  name  of  his  principal,  believing  that  the  principal  will  ratify  his 
act.     The  principal  refuses  to  ratify.     Is  the  agent  liable? 

13.  Van  Horn  appointed  Barth,  his  agent,  to  represent  him  for  one 
year  at  a  salary  of  mpioo  a  month.  At  the  end  of  three  months  he  discharged 
him  without  cause.  Could  Van  Horn  so  discharge  his  agent,  and  if  so,  was 
he  liable  to  Barth  for  damages? 

14.  Suppose  that  in  the  above  case  Barth  deals  with  parties  as  the 
agent  of  Van  Horn  after  he  has  been  discharged.  The  parties  with  whom  he 
deals  have  no  knowledge  of  his  discharge.  Can  they  hold  Van  Horn  on  the 
agreement  made  by  Barth? 

15.  An  agent  employed  to  sell  goods  for  his  principal  sells  to  Howard 
the  day  after  his  principal's  death,  neither  Howard  nor  the  agent  knowing 
that  the  principal  is  dead.  Can  Howard  hold  the  principal's  estate  on  the 
contract? 

16.  If  in  the  above  case  the  principal  had  become  insane,  but  had  not 
been  legally  so  declared,  could  the  principal  have  been  held? 

17.  Cory  is  purchasing  agent  for  Rice.  Rice  dies  while  traveling  in 
Europe.  After  Rice's  death,  but  before  the  news  arrives,  Cory,  acting  for 
Rice,  contracts  for  an  automobile  to  be  delivered  next  month.  Rice's 
executor  refuses  to  take  the  car.    Has  he  the  legal  right  to  do  so?    Explain. 

18.  Ross  was  engaged  as  agent  by  the  Childs  Toy  Co.  to  advertise 
their  goods  by  distributing  hand  bills  in  various  towns.  In  one  town  Ross 
was  fined  $25  for  violating  an  ordinance,  of  which  he  was  ignorant,  pro- 
hibiting the  distribution  of  hand  bills  without  a  license.  Could  Ross  re- 
cover the  $25  from  his  employer? 

19.  Warren  owned  a  house  and  lot  which  he  desired  to  sell.  He  put 
the  property  into  the  hands  of  a  real  estate  agent,  with  instructions  to  sell 
it  for  $20,000  and  to  remit  the  proceeds  to  him  after  the  deduction  of  5  % 
commission.  The  agent  sold  the  house  for  $21,000  and  kept  the  $1000  in 
addition   to   his   commission   on   $20,000.     What   are   Warren's   rights? 

20.  Jackson  appointed  Muth  his  agent  to  sell  his  automobile,  instruct- 
ing him  to  sell  for  cash  only.  Muth  accepted  the  purchaser's  note  for  part 
of  the  price  and  the  note  was  uncollectible.  Has  Jackson  any  claim  against 
Muth? 


CASE  PROBLEMS  i4S 

21.  Foster,  on  moving  from  the  city,  sent  most  of  his  furniture  to  a 
local  auctioneer  to  be  sold.  The  auctioneer  advanced  $ioo  in  part  payment, 
with  the  understanding  that  he  should  withhold  this  amount  when  the 
furniture  was  sold.  Later  Foster  wrote  to  the  auctioneer  revoking  the 
agreement.     Had  he  this  right?     Explain. 

22.  An  agent  was  authorized  to  sell  goods  for  his  principal  at  a  stated 
price.  The  agent  without  authority  sold  at  a  less  price,  made  part  delivery, 
received  payment  for  part  delivered,  and  turned  the  amount  over  to  the 
principal.  When  the  time  came  to  deliver  the  balance  the  principal  ad- 
vised the  buyer  that  the  agent  had  exceeded  his  authority  and  therefore  he, 
the  principal,  would  not  permit  further  delivery.  What  are  the  buyer's 
rights?     Explain. 

23.  Norman  &  Son  placed  with  an  agent  of  a  manufacturing  company 
an  order  for  machinery  subject  to  the  approval  of  the  manufacturing  com- 
pany. The  manufacturing  company  wrote  Norman  &  Son  that  they  would 
give  the  matter  their  attention,  but  they  did  not  definitely  accept  the  order. 
Thereafter  Norman  &  Son  countermanded  the  order.  The  manufacturing 
company  shipped  the  machinery  and  Norman  &  Son  refused  to  take  it. 
Were  Norman  &  Son  liable? 

24.  An  agent,  in  selling  goods  for  his  principal,  makes  false  representa- 
tions without  the  knowledge  or  consent  of  the  principal.  A  defrauded 
customer  brings  an  action  against  the  principal,  who  defends  on  the  ground 
that  the  agent,  in  making  such  false  representations,  exceeded  his  authority. 
Is  this  a  good  defense?     State  the  principle  involved. 

25.  Slater,  as  agent  for  the  Commonwealth  Fire  Insurance  Company, 
insured  a  building  belonging  to  Rowe.  At  the  time  of  the  interview  Rowe 
stated  to  Slater  that  the  building  was  used  for  storage  purposes  only  and 
that  at  times  he  kept  a  quantity  of  paper  stored  in  it.  To  this  Slater  re- 
plied that  he  would  be  allowed  to  do  this  and  his  pohcy  would  hold  good. 
The  policy  contained  a  provision  that  the  company  would  not  be  liable  for 
loss  by  fire  of  any  unoccupied  building  in  which  loose  or  inflammable  ma- 
terial was  stored.  The  building  burned  and  Rowe  took  action  against  the 
Insurance  Company.     Can  he  recover?    What  are  his  rights? 

26.  The  publishers  of  a  daily  paper  hired  a  young  and  inexperienced 
driver  to  deliver  papers  to  their  different  city  agencies.  By  his  careless 
driving  he  knocked  down  and  injured  an  elderly  gentleman.  Are  the  pub- 
lishers liable? 


NEGOTIABLE  INSTRUMENTS 

I.   IN   GENERAL 

Definition.  —  A  negotiable  instrument  may  be  defined  as  a 
written  instrument  or  evidence  of  debt  which  may  be  trans- 
ferred from  one  person  to  another  by  indorsement  and  delivery, 
or  by  delivery  only,  so  that  the  legal  title  becomes  vested  in 
the  transferee.  The  principal  forms  of  negotiable  instruments 
are  promissory  notes,  bills  of  exchange,  foreign  and  inland,  and 
checks.     (See  forms  in  Appendix.) 

Negotiable  instruments  are  an  important  factor  in  business 
transactions  of  the  present  day,  passing  from  hand  to  hand,  in 
a  sense,  as  a  substitute  for  money.  As  a  means  of  transferring 
funds  and  paying  debts  the  check  is  as  common  among  busi- 
ness houses  as  money  itself,  while  the  promissory  note  is  also 
a  very  important  factor  of  our  business  system.  The  note  is 
taken  to  the  bank  when  the  borrower  desires  money  advanced 
to  him  by  that  institution.  It  is  given  to  close  a  business  trans- 
action when  so  agreed  if  the  date  of  payment  is  a  day  in  the 
future;  and  as  a  large  part  of  the  business  of  to-day  is  trans- 
acted on  credit,  we  can  see  the  great  usefulness  of  the  promis- 
sory note  as  a  transferable  evidence  of  debt. 

The  term  "  negotiable  "  is  applied  to  these  instruments  be- 
cause they  pass  freely  from  hand  to  hand,  they  by  their  terms 
providing  for  such  transfer. 

Statute  Law.  —  It  is  very  important  that  contracts  which 
are  to  pass  from  hand  to  hand  and  from  state  to  state  with  al- 
most the  freedom  of  money  should  be  subject  to  practically  the 
same  laws  and  rules,  and  to  this  end  a  statute  covering  the 
principal  questions  concerning  negotiable  instruments  has  been 
adopted  in  all  of  the  forty-eight  states  except  Georgia,  giving 
a  uniformity  that  renders  these  instruments  more  freely  ne- 
gotiable than  they  would  otherwise  be.  This  statute  is  known 
as  the  Uniform  Negotiable  Instruments  Law.  We  speak  of 
negotiable  instruments  as   contracts,   and  in  reality  they  are 

146 


IN  GENERAL  147 

written  contracts,  possessing  special  characteristics  which  give 
them  privileges  and  qualities  different  from  those  in  ordinary 
contracts. 

Essential  Conditions.  —  The  question  arises  as  to  what  con- 
ditions are  essential  to  constitute  a  contract  a  negotiable  instru- 
ment. In  general  we  find  that  no  exact  form  need  be  followed, 
although  custom  has  prescribed  forms  that  are  very  generally 
used,  but  an  instrument  to  be  negotiable  must  conform  to  the 
following  requirements: 

1.  It  must  be  in  writing  (printed  forms  may  be  used). 

2.  It  must  be  signed  by  the  party  executing  it  (maker  or 
drawer). 

3.  It  must  be  negotiable  in  form,  i.e.  payable  to  the  order 
of  a  designated  payee,  or  to  bearer. 

4.  It  must  be  payable  in  money,  and  the  amount  must  be 
definite  and  certain. 

5.  It  must  be  payable  absolutely  and  unconditionally. 

6.  It  must  contain  a  promise  or  order  to  pay. 

7.  It  must  be  payable  on  demand  or  at  a  fixed  or  deter 
minable  future  time. 

The  Instrument  must  be  in  Writing.  —  The  first  require- 
ment is  that  the  instrument  be  in  writing.  No  oral  contract 
could  be  negotiable.  By  a  written  contract  we  mean  one  in 
either  writing  or  printing  or  both,  and  the  writing  may 
be  executed  with  any  substance,  as  ink  or  pencil. 

The  whole  instrument  must  be  written.  No  essential  part, 
as  the  names  of  the  parties,  or  the  amount,  can  be  omitted 
from  the  writing. 

The  Instrument  must  be  Signed  by  the  Party  Executing  it. 
—  It  is  usual  that  the  signature  be  made  by  writing  the  name 
of  the  signer,  but  it  is  not  necessary,  as  he  may  affix  his  mark 
or  any  other  character  intended  to  be  a  signature. 

It  is  usual  to  place  the  signature  at  the  close  of  the  instru- 
ment, but  if  it  is  shown  that  it  is  meant  for  a  signature,  it  may 
be  placed  on  any  other  part,  unless  the  statute  requires  that  the 
name  be  subscribed. 

A  note  and  a  power  of  attorney  to  confess  judgment  were  both  written 
on  the  same  sheet  of  paper.    The  note  was  not  signed  by  the  maker,  but  his 


148  NEGOTIABLE  INSTRUMENTS 

signature  was  written  after  the  power  of  attorney  at  the  foot  of  the  sheet. 
It  was  held  that  the  note  was  sufficiently  executed. 

—  Heslip  V.  Anderson,  134  111.  Appeals  8. 

The  Instrument  must  be  Negotiable  in  Form.  —  The  instru- 
ment must  be  payable  to  "  Order  "  or  ''  Bearer."  If  made 
payable  to  a  particular  person  or  persons  only,  it  is  not  a  ne- 
gotiable instrument,  and  falls  under  the  rules  governing  a 
simple  contract.  In  other  words,  the  intent  of  the  party  mak- 
ing the  instrument  to  execute  a  negotiable  paper  must  appear 
by  some  express  words  showing  such  a  purpose. 

A  note  read  as  follows: 

MuRFREESBORO,  Tenn.,  Feb. 5,  1903. 
On  the  24th  day  of  December,  1903,  I  promise  to  pay  to  Robert  B. 
Meeks  the  sum  of  Three  hundred  ($300)  dollars,  with  interest  from  date. 

J.  R.  Harrell. 
This  was  held  to  be  not  negotiable,  since  it  did  not  contain  the  words 
"or  order,"  which  are  necessary  to  negotiability. 

—  Gilley  v.  Harrell,  ti8  Tenn.  115. 

The  Instrument  must  be  Payable  in  Money,  and  the  Amount 
must  be  Definite  and  Certain.  —  The  very  reason  it  must  be 
payable  in  money  is  that  if  it  were  payable  in  any  other  com- 
modity the  value  might  not  be  definite  and  certain.  If  payable 
in  a  given  number  of  bushels  of  wheat,  the  person  taking  it 
would  be  obliged  to  determine  the  value  of  wheat  at  that  place; 
the  value  at  another  place  might  be  materially  different.  By 
the  term  "  money  "  is  meant  the  legal  tender  of  the  country; 
that  is,  a  note  payable  in  Spanish  money  is  not  a  negotiable 
instrument  in  the  United  States. 

The  Attoyac  River  Lumber  Company  issued  to  its  employees  checks 
which  were  redeemable  only  in  merchandise  at  the  Company's  store.  It 
was  held  that  the  checks  were  not  negotiable  instruments. 

—  Attoyac  River  Lumber  Co.  v.  Payne,  57  Tex.  Civil  Appeal  327. 

In  a  suit  on  a  note  made  and  dated  at  Buffalo,  N.  Y.,  for  $2500,  payable 
twelve  months  after  date  at  the  Commercial  Bank  of  Buffalo,  N.  Y.,  in 
Canadian  money,  it  was  held  that  the  note  was  not  negotiable.  A  promis- 
sory note,  in  order  to  be  negotiable  with'n  the  meaning  of  the  law,  must 
be  payable  in  current  money  and  not  in  the  money  of  some  other  country. 

—  Thompson  v.  Sloan,  23  Wend.  (N.  Y.)  71. 

A  note  ''payable  to  the  Protection  Insurance  Co.,  or  order,  for  $271.25, 
with  such  additional  premium  as  may  arise  on  policy  No.  50,  issued  at  the 
Calais  Agency"  was  held  to  be  a  non-negotiable  instrument,  the  amount 
payable  being  indefinite  and  uncertain.  — Dod^e  v.  Emerson,  34  Ma  ne  96. 


IN  GENERAL  149 

The  sum  payable  is  considered  fixed  and  certain  although 
it  is  payable  with  interest,  or  in  stated  installments,  or  with 
exchange,  or  with  the  costs  of  collection  in  case  payment  is 
not  made  at  maturity,  or  if  the  holder  is  given  the  option  to 
require  payment  in  money  or  some  other  way.  But  an  instru- 
ment promising  to  pay  money  and  something  else  is  not  ne- 
gotiable, as  there  is  no  sum  certain  ir^  money. 

An  instrument  containing  a  promise  to  pay  $3400  and  one  half  of  the 
wheat  grown  on  certain  land  was  held  to  be  non-negotiable. 
,  —  Thomson  v.  Koch,  62  Wash.  438. 

The  Instrument  must  be  Payable  Absolutely  and  Uncon- 
ditionally. —  If  the  instrument  i.)  r,o  drawn  that  any  condition 
may  arise  which  would  render  it  of  no  effect,  it  is  not  a  negoti- 
able paper.  Consequently,  a  promise  to  pay  a  certain  sum  out 
of  a  designated  fund  is  not  negotiable,  and  this  is  the  case  even 
though  the  fund  exists  at  the  time  or  the  condition  that  would 
nullify  the  contract  never  arises. 

An , instrument  reading  ''Please  pay  to  the  order  of  Woodward  $600, 
the  same  to  be  the  last  $600  due  me  on  my  contract,  and  charge  the  same 
to  my  account"  was  held  not  to  be  a  negotiable  instrument,  being  payable 
out  of  a  specific  fund.  —  Woodward  v.  Smith,  104  Wis.  365. 

Promise  or  Order.  —  The  instrument  must  contain  a  prom- 
ise or  order  to  pay. 

$17.14  Bridgeport,  Conn.,  Jan.  22,  1863. 

Due  Currier  &  Barker  seventeen  dollars  and  fourteen  cents,  value 
received.  Frederick  Lockwood. 

It  was  held  that  the  above  instrument  was  not  a  promissory  note. 

—  Currier  v.  Lockwood,  40  Conn.  349. 

This  is  merely  a  due  bill.  It  does  not  contain  a  promise  to 
pay.  A  bare  acknowledgment  of  a  debt  does  not  in  legal  con- 
struction import  an  express  promise  to  pay. 

The  Negotiable  Instruments  Law  provides  that  an  instrument 
is  payable  to  bearer  when  payable  to  '^Bearer";  or  to  "A  or 
Bearer  ";  or  to  the  order  of  a  fictitious  or  non-existent  person,  as 
"Estate  of  A";  or  when  the  payee  does  not  purport  to  be  the 
name  of  a  person,  as  "Cash,"  or  "Pay  Roll." 

When  the  instrument  is  payable  to  order  the  payee  must 
be  named  or  indicated  with  reasonable  certainty. 


I50  NEGOTIABLE  INSTRUMENTS 

$2500.  La  Crosse,  Wisconsin,  Sept.  2,  1897. 

Four  months  after  date  I  promise  to  pay  to  the  order  of  twenty-five 
hundred  dollars.    Value  received.  John  Wilding. 

It  was  held  that  this  was  not  a  negotiable  instrument,  as  it  neither 
designated  the  payee  nor  left  a  blank  space  for  the  payee's  name. 

—  Smith  V.  Wilding,  123  Wis.  377. 

The  Uniform  Law  provides  that  negotiability  is  not  destroyed 
by  the  fact  the  instrument  is  payable  to  one  or  some  of  sev- 
eral payees.  Thus  a  note  payable  to  A,  B,  or  C  is  nego- 
tiable upon  indorsement  by  any  one  of  the  three. 

The  Time  must  be  Certain.  —  The  time  of  payment  must 
be  definite  and  fixed.  That  is,  the  date  of  payment  must  be 
definitely  stated,  or  it  must  be  on  or  before  a  certain  definite 
date,  or  at  a  certain  time  after  the  happening  of  an  event  that 
is  sure  to  occur,  or  on  demand.  A  note  payable  a  certain  number 
of  days  after  the  death  of  a  person  is  negotiable,  the  date  being 
certain  because  the  time  is  sure  to  arrive. 

It  was  held,  that  the  following  was  a  negotiable  instrument,  as  the 
.meaning  was  that  it  should  be  payable  after  the  death  of  the  maker: 
''After  my  death  date  I  promise  to  pay  Hanson  Camp  or  order  the  sum  of 
$750  without  interest."  —  Shaw  v.  Camp,  160  111.  425. 

But  the  contingent  event  must  be  certain  to  occur  or  the 
promise  will  not  be  absolute,  and  the  fact  that  the  contingency 
has  happened  does  not  cure  the  defect. 

Castleton,  April  27,  1844. 

Due  Henry  D.  Kelley  fifty- three  dollars,  when  he  is  twenty-one  years 
old,  with  interest.  David  Kelley. 

In.  an  action  on  the  above  instrument  it  was  proved  that  Henry  D. 
Kelley  became  of  age  before  the  action  was  commenced.  The  court  held 
that  the  instrument  was  not  negotiable,  as  payment  was  contingent  on  an 
event  that  might  or  might  not  happen.  The  money  was  therefore  not 
payable  ''absolutely  and  at  all  events,"  and  the  paper  lacked  one  of  the 
necessary  elements  of  a  negotiable  instrument. 

—  Kelley  v.  Hemmingway,  13  111.  604. 

The  law  simply  requires  that  the  time  of  payment  shall  be 
sure  to  arrive. 

Omissions.  —  The  date,  the  place  where  the  instrument  is 
drawn,  the  place  where  it  is  payable,  and  the  term  "  value 
received  "  may  be  omitted  and  the  instrument  will  still  be  good. 

The  law  provides  that  when  the  date  is   omitted  any  holder 


PROMISSORY  NOTES  151 

may  insert  the  true  date.  He  may  fill  in  any  other  particulars 
which  have  been  omitted,  but  in  doing  so  he  must  act  honestly 
and  according  to  the  original  agreement,  or  he  will  lose  his 
rights. 

QUESTIONS 

1.  What  is  a  negotiable  instrument? 

2.  What  are  the  principal  forms  of  negotiable  instruments? 

3.  In  general  what  use  is  made  of  (a)  the  check,  (b)  the  promissory 
note? 

4.  Why  is  the  term  "  negotiable  "  applied  to  checks,  notes,  etc.? 

5.  What  is  the  Uniform  Negotiable  Instruments  Law? 

6.  What  are  the  essential  requirements  of  negotiable  instruments? 

7.  Explain  the  statement:    "The  instrument  must  be  in  writing." 

8.  Where  should  the  signature  be  placed? 

9.  What  makes  an  instrument  negotiable  in  form?    Explain  fuUy. 

10.  Why  must  a  negotiable  instrument  be  payable  in  money? 

11.  What  is  meant  by  the  term  "money"? 

12.  Explain  the  meaning  of  "  payable  absolutely." 

13.  What  are  the  words  usually  used  to  indicate  negotiability? 

14.  Is  an  instrument  negotiable  which  is  payable  to  "O.  H.  Jarvis  or 
James  Shan"?    Explain. 

15.  Is  a  negotiable  instrument  payable  after  death  good?    Explain. 

16.  Explain  the  statement,  "  The  time  must  be  certain." 

17.  What  are  the  four  ways  of  fixing  the  due  date? 

18.  What  may  be  omitted  from  a  negotiable  instrument  without 
affecting  its  validity? 


2.  PROMISSORY  NOTES 

Definition.  —  A  promissory  note  is  an  unconditional  written 
promise  made  by  one  or  more  persons  to  pay  to  another  or  his 
order  or  bearer  a  certain  sum  of  money  at  a  specified  time. 

The  party  who  makes  the  note  and  whose  promise  is  con- 
tained therein  is  called  the  makers  and  the  party  to  whom  the 
promise  is  made  is  called  the  payee. 

Form.  —  There  is  no  form  of  note  prescribed  by  law.  In 
ordinary  business  practice  a  printed  blank  form  is  used,  which 
may  be  filled  in.  The  words  "with  interest"  indicate  that  the 
note  bears  interest  from  its  date.  In  the  absence  of  such  words, 
it  bears  interest  only  after  maturity. 


152  NEGOTIABLE  INSTRUMENTS 

Notes  are  either  several,  joint,  or  joint  and  several,  depend- 
ing on  the  wording  and  the  number  of  makers. 

Bangor,  Maine,  Aug.  ii,  19 — . 

Thirty  days  after  date  I  promise  to  pay  to  the  order  of  J.  W.  Strouss 

One  Hundred-^ Dollars. 

$100^.  H.  S.  Dickson. 

This  is  a  several  note,  as  it  has  only  one  maker. 

In  a  joint  note  there  are  two  or  more  makers  and  the  ob- 
ligation to  pay  rests  upon  them  jointly,  and  they  must  be  sued 
together;   if  one  is  released  the  other  or  others  cannot  be  held. 

Denver,  Col.  Aug.  11,  19 — 

Thirty  days  after  date  we  promise  to  pay  to  the  order  of  E.  E. 
Bishop,  One  Hundred  ^^ Dollars. 

$100^.  L.  W.  Manker, 

E.  D.  Lander. 

This  is  a  joint  note  and  the  makers  are  responsible  jointly 
for  the  pajmaent  of  the  note.  This  note  is  worded  *' We  promise 
to  pay,"  but  it  might  be  worded  "We  jointly  promise  to  pay." 

When  two  or  more  persons  make  a  note  and  agree  to  pay 

jointly  and  severally  the  form  is  substantially  as  follows:  — 

$400-^.  Fall  River,  Mass.,  Aug.  2,19 — . 

One  month  after  date  we  jointly  and  severally  promise  to  pay  to 
the  order  of  The  Fall  River  Savings  Bank 

Four  Hundred— Dollars 

100 

payable  at  the  office  of  the  bank.  George  M.  Holden, 

R.  W.  Penhollow, 

E.  E.  Bishop. 

Upon  this  joint  and  several  note  the  makers  may  be  sued 
together  or  any  one  can  be  held  severally  for  the  full  amount. 

If  a  note  is  worded,  "  I  promise  to  pay"  and  is  signed  by 
two  or  more  parties,  it  is  considered  a  joint  and  several  note. 

$400.  RiPON,  Wis.,  Nov.  4,  1856. 

Thirty  days  after  date,  for  value  received,  I  promise  to  pay  Putnam  C. 
Dart,  or  order,  four  hundred  dollars  with  interest  at  the  rate  of  twelve 
per  cent  per  annum.  j    q    Sherwood, 

Wm.  C.  Sherwood. 

This  was  held  by  the  court  to  be  a  joint  and  several  note;  joint  because 
signed  by  both  parties  and  several  because  each  defendant  promised  sever- 
ally. —  Dart  V.  Sherwood,  7  Wis.  523. 


PROMISSORY  NOTES  153 

The  following  note  was  held  to  be  joint  and  several,  and  separate  judg- 
ments might  be  rendered  against  the  two  makers. 
$270.  Stockton,  March  14,  1875. 

One  day  after  date  I  promise  to  pay  Lorenzo  Ely,  or  bearer,  two 
hundred  and  seventy  dollars  at  the  post  office  in  Stockton.  Value  received 
with  use.  Thomas  W.  Clu.te, 

J.  B.  Clute. 
—  Ely  V.  Clute,  19  Hun  (N.  Y.)  35. 

In  a  few  of  the  states  the  distinction  between  joint  notes  and 
joint  and  several  notes  has  been  abolished,  and  all  notes  signed 
by  two  or  more  parties  have  been  declared  to  be  joint  and 
several. 

In  either  a  joint  note  or  a  joint  and  several  note  if  one 
party  has  to  pay  the  whole  amount  he  has  a  valid  claim  against 
the  other  makers  for  their  shares. 

The  Negotiable  instruments. Law  provides  that  the  signature 
of  any  party  may  be  made  by  a  duly  authorized  agent.  Where 
the  instrument  contains,  or  a  person  adds  to  his  signature,  words 
indicating  that  he  signs  for  or  on  behalf  of  a  principal,  or  in  a 
representative  capacity,  he  is  not  liable  on  the  instrument  if  he 
was  duly  authorized;-  but  the  mere  addition  of  words  describing 
him  as  an  agent,  without  disclosing  his  principal,  does  not 
exempt  him  from  personal  liability. 

An  action  was  brought  on  an  instrument  reading,  "I,  J.  L.  De  Give, 
President  of  the  Southern  Historical  Association,  hereby  agree  to  pay 
Governor  A.  D.  Candler  $250,"  and  signed  "J.  L.  De  Give,  President." 
It  was  held  that  De  Give  was  personally  liable  on  the  instrument,  as  the 
word  "President"  was  merely  descriptive. 

—  Candler  v.  De  Give,  133  Ga.  486. 

The  proper  way  for  an  individual  who  is  acting  as  agent 
for  another  individual  to  sign  an  instrument  is:  "  James  Lane, 
by  George  Chapman,  Agent."  An  officer  of  a  corporation 
should  sign  as  follows:  "Michigan  Rubber  Company,  by 
George  Chapman,  President." 

$637.40.  Milwaukee,  Jan.  i,  1887. 

Ninety  days  after  date  we  promise  to  pay  to  Leo  Liebscher,  or  order, 
the  sum  of  six  hundred  and  thirty-seven  dollars  and  forty  cents,  value 
received.  San  Pedro  Mining  &  Milling  Co., 

F.  Kraus,- President. 

Liebscher  demanded  judgment  against  the  corporation  and  Kraus  as 
ioint  makers  of  this  note.    The  court  held  that  it  was  the  note  of  the 


154  NEGOTIABLE  INSTRUMENTS 

company  alone  and  that  Kraus  signed  for  the  company  as  its  president.  The 
signature  alone  showed  plainly  enough  that  Kraus  was  acting  as  officer  or 
agent  of  the  company.  —  Liebscher  v.  Kraus,  74  Wis.  387. 

Some  cases  are  in  conflict  with  the  above.   It  would  be  safer  for 
Kraus  to  put  "By''  before  his  name. 

QUESTIONS 

1.  What  is  a  promissory  note? 

2.  What  are  the  parties  to  a  promissory  note  called? 

3.  How  are  promissory  notes  usually  made  out? 

4.  What  is  a  several  note? 

5.  What  is  a  joint  note? 

6.  What  is  a  joint  and  several  note? 

7.  In  a  joint  and  several  note  if  one  party  has  to  pay  the  whole  sum, 
what  are  his  rights? 

8.  What  are  the  provisions  of  the  Negotiable  Instruments  Law  with 
reference  to  signatures? 

9.  How  would  you  sign  as  agent  for  J.   C.  Milton  and  Co.? 
10.   Is  a  promissory  note  a  contract?    Explain. 

3.  BILLS  OF  EXCHANGE 

Definition.  —  A  bill  of  exchange,  or  draft,  is  a  written  order 
from  one  person  to  another  to  pay  to  a  third  party  or  his  order 
a  certain  amount  of  money  at  a  specified  time. 

The  parties  to  a  bill  of  exchange  or  draft  are:  the  drawer, 
the  party  who  draws  the  draft;  the  payee,  the  party  to  whom 
the  draft  is  payable;  and  the  drawee,  the  party  on  whom  the 
draft  is  drawn,  or  the  one  who  is  to  pay  it. 

Bank  Draft.  —  When  the  drawer  and  drawee  are  banks  the 
bill  of  exchange  is  known  as  a  bank  draft  and  constitutes  a 
common  method  of  paying  the  debts  of  parties  residing  in 
different  localities. 

Allen  owes  Brown  of  Boston  $100  and  wishes  to  pay  him;  therefore  he 
goes  to  his  bank  in  Chicago  and  purchases  a  draft  on  a  New  York  bank  and 
sends  it  to  Brown.  This  draft  he  has  made  payable  to  himself  and  on  the 
back  indorses  "Pay  to  the  order  of  William  Brown"  and  signs  *' Charles  M. 
Allen." 

The  draft  might  have  been  made  payable  to  Brown  on  its  face,  but  the 
advantage  of  the  other  form  is  that  when  the  draft  is  returned  to  the 
Merchants  Bank,  having  been  indorsed  by  Brown,  it  contains  a  complete 
record  of  the  transaction,  and  in  case  of  a  dispute  is  a  receipt  which  Allen 
could  procure  for  use  in  evidence. 


BILLS  OF  EXCHANGE 


iSS 


The  banks  have  an  arrangement  among  themselves  through 
the  clearing  house  and  their  correspondents  in  the  large  financial 
centers  like  New  York  and  Chicago,  by  reason  of  which  they 
can  issue  these  drafts.  Here  it  may  be  seen  how  the  bill 
of  exchange  or  bank  draft  acts  as  a  convenient  transfer  of  ob- 
ligation without  the  necessity  of  conveying  money  between 
distant  points. 

Bills  of  Exchange  may  be  either  Foreign  or  Inland.  —  A 
foreign  bill  of  exchange  is  a  bill  drawn  in  one  state  or  country 
and  payable  in  another  state  or  country.  An  inland  bill  of 
exchange  is  one  made  payable  in  the  same  state  in  which  it  is 
drawn.  In  the  United  States,  however,  a  more  usual  distinction 
is  between  domestic  bills,  drawn  and  payable  in  the  United  States 
(whether  in  the  same  or  in  different  states),  and  foreign  bills, 
drawn  or  payable  in  a  foreign  country. 

A  bill  drawn  or  payable  in  a  foreign  country  is  usually  drawn 
in  duplicate  or  triplicate,  and  upon  the  payment  of  one  the  other 
or  others  become  void.  The  several  copies  are  termed  a  set,  the 
object  in  having  them  so  drawn  being  that  if  one  is  lost,  the  other, 
or  others,  being  sent  by  different  routes,  will  reach  their  destina- 
tion.   The  first  copy  presented  is  the  one  paid. 

Time  and  Sight  Drafts.  —  A  time  draft  is  one  payable  at  a 
given  time  after  demand  or  sight  or  date.  It  is  usually  worded 
''At  thirty  days'  (or  any  number  of  days)  sight  pay  to  the  order 
of"  etc.,  or  "Thirty  days  (or  any  number  of  days)  after  date 
pay  to  the  order  of"  etc.  When  a  draft  is  payable  at  a  certain 
number  of  days'  sight  it  must  be  accepted  by  the  drawee;  the 
time  is  reckoned  from  the  date  of  the  acceptance.  A  draft 
payable  a  certain  number  of  days  after  date  does  not  have  to  be 
accepted;  however,  it  is  best  to  have  it  accepted,  as  otherwise 
the  payee  runs  a  greater  risk  of  having  it  dishonored  after  hold- 
ing it  the  full  time, 

A  sight  draft  is  worded,  "At  sight  pay  to,"  etc.,  and  is  pay- 
able on  presentation. 

The  draft  is  a  common  means  employed  by  business  houses  to  col- 
lect debts  due  them  from  parties  residing  in  other  places.  The  cred- 
itor draws  upon  the  debtor  forthepurpose  of  making  the  collection. 


iS6  NEGOTIABLE  INSTRUMENTS 

Jackson,  who  is  doing  business  in  Chicago,  owes  Rupert,  a  wholesaler 
in  New  York,  $1000.  Rupert  draws  a  sight  draft  on  Jackson  payable  to 
"Myself"  for  $1000  and  indorses  it  to  his  bank  in  New  York  for  collection. 
The  New  York  bank  sends  the  draft  to  its  correspondent  (some  bank)  in 
Chicago,  who  collects  it  and  the  proceeds  are  returned  and  placed  to  the 
credit  of  Rupert  in  the  New  York  bank. 

The  bill  of  exchange  and  promissory  note,  like  the  bank  draft, 
may  be  transferred  by  the  payee,  and  so  may  pass  from  hand 
to  hand,  and  thus  take  the  place  of  money. 

Acceptance.  —  A  bill  of  exchange  being  an  order  on  the 
drawee  to  pay  a  certain  amount  of  money  to  a  third  party,  it 
is  not  binding  upon  the  drawee  until  he  has  accepted  it.  The 
acceptance  is  signified,  if  a  sight  draft,  by  payment;  if  a  time 
draft,  by  the  drawee  writing  the  word  "Accepted"  and  the  date 
across  the  face  of  the  draft  and  signing  his  name.  After  he  has 
accepted  the  bill,  he  becomes  the  acceptor  and  his  obligation  is 
then  fixed  and  absolute  and  can  be  enforced  against  him,  his 
position  becoming  much  the  same  as  that  of  the  maker  of  a  note. 
The  acceptance  may  be  upon  the  bill  or  in  a  separate  written 
statement.  Barring  the  case  of  an  acceptance  for  honor,  which 
will  be  discussed  later,  the  only  person  who  can  accept  a  bill  is 
the  drawee. 

$1000.  New  York,  Aug.  11,  19 — . 

At  sixty  days'  sight  pay  to  the  order  of  J.  M.  Brenen  one  thousand 
dollars  and  charge  to  the  account  of 
To  E.  H.  Pell,      Denver,  Colo.  Homer  Johnson. 

E.  H.  Pell  writes  across  the  face  of  this  draft,  "Accepted  Aug.  21, 
19 —  E.  H.  Pell."  This  is  a  regular  acceptance  and  the  draft  is  due  sixty 
days  after  Aug.  21. 

A  drawee  may  accept  the  draft  payable  at  a  certain  bank 
where  he  has  funds  on  deposit,  or  he  may  qualify  the  acceptance 
in  almost  any  way  he  sees  fit.  He  may  reduce  the  amount;  he 
may  change  the  time;  or,  he  may  attach  a  condition.  The  holder 
is  not  bound  to  take  a  qualified  acceptance,  and  he  may  declare 
the  draft  dishonored. 

When  the  drawee  accepts  a  draft  unconditionally  he  is 
bound  by  its  terms,  even  though  it  is  not  genuine. 

In  an  action  to  recover  the  money  paid  on  a  forged  draft,  the  court  held 
that  the  drawee  could  not  recover  from  an  innocent  holder.  It  is  a  well- 
settled  rule  that  it  is  incumbent  upon  the  drawee  of  a  bill  to  be  satisfied  that 


BILLS  OF  EXCHANGE  157 

the  signature  of  the  drawer  is  genuine,  and  he  is  presumed  to  know  the  hand- 
writing of  such  drawer,  and  if  he  accepts  or  pays  a  bill  to  which  the  drawer's 
name  has  been  forged,  he  is  bound  by  the  act  and  can  neither  repudiate  the 
acceptance  nor  recover  the  money  paid  to  an  innocent  holder. 

—  National  Park  Bank  v.  Ninth  National  Bank,  46  N.  Y.  77. 

The  Bill  must  be  Presented  to  the  Drawee  for  Acceptance 
or  Pajmient.  —  Until  the  bill  is  accepted  the  drawer  is  the  party- 
liable  to  the  payee.  He  agrees  that  the  drawee  will  accept  it  or 
he  himself  will  pay  it  if  proper  presentment  and  demand  be  made 
upon  the  drawee  and  notice  of  dishonor  be  given  him.  If  the  bill 
is  payable  a  certain  length  of  time  after  sight,  it  must  be  presented 
for  acceptance  and  the  acceptance  secured  before  the  time  will 
begin  to  run.  The  acceptor  should  always  include  tte  date  in 
his  acceptance  on  this  kind  of  draft.  If  the  bill  is  payable  at  sight 
or  on  demand,  it  must  be  presented  to  the  drawee  for  payment 
within  a  reasonable  time.  If  the  drawee  refuses  to  accept,  the 
drawer  must  be  duly  notified  and  he  thereupon  becomes  liable 
for  the  bill. 

A  bill  of  exchange  dated  December  18,  1851,  was  not  presented  for 
payment  until  two  years  and  nine, months  thereafter.  The  draft  contained 
no  specific  date  for  payment.  Held,  that  the  draft  was  payable  on  demand 
and  must  be  presented  for  payment  within  a  reasonable  time  to  hold  the 
drawer  and  indorser;  and  that  an  unexplained  delay  of  two  years  and  nine 
months  is  unreasonable  and  the  drawer  and  indorser  are  released. 

—  Chambers  v.  Hill,  26  Tex.  472. 

When  the  drawee  refuses  to  accept,  the  bill  is  said  to  be 
dishonored. 

Acceptance  for  Honor.  —  Mention  has  been  made  of  ac- 
ceptance for  honor.  This  is  also  known  as  acceptance  supra 
protest. 

When  a  bill  has  been  protested  for  dishonor  by  nonaccep- 
tance,  and  is  not  overdue,  any  person  not  being  a  party  al- 
ready liable  thereon  may,  with  the  consent  of  the  holder,  accept 
the  bill  supra  protest  for  the  honor  of  any  party  liable  or  for 
whose  account  the  bill  is  drawn.  The  acceptor  for  honor  is 
liable  to  all  parties  to  the  bill  subsequent  to  the  one  for  whose 
honor  he  has  accepted,  and  his  undertaking  is  to  pay  the  bill, 
if  it  is  duly  presented  to  the  drawee  for  payment,  is  dishonored 
by  nonpayment,  is  protested,  and  notice  given  to  such  acceptor. 


158  NEGOTIABLE  INSTRUMENTS 

Virtual  Acceptance.  —  There  is  another  mode  of  acceptance 
known  as  "  virtual  "  acceptance,  which  is  practically  a  promise 
to  accept.  If  the  virtual  acceptance  consist  of  a  written  un- 
conditional promise  to  accept  a  bill  already  drawn  or  one  to  be 
drawn  in  the  future,  it  is  binding  in  favor  of  one  who  has  taken 
it  for  value  with  a  knowledge  of  the  acceptance  and  in  reliance 
thereon.  The  promise  must  clearly  describe  the  bill  and  must 
be  absolute  in  its  terms. 

Burk  wrote  to  Marsh  as  follows:  *'  Mr.  A.  D.  Hunt,  whom  you  know,  has 
offered  me  a  thirty-day  sight  draft  on  you  for  $300  which  he  says  you  owe 
him  on  account.  I  wish  to  know,  before  taking  this  draft,  if  you  will  honor 
it  when  it  is  presented  to  you."  To  this  Marsh  replied  as  follows:  ''I  am 
indebted  to  Mr.  A.  D.  Hunt  in  the  sum  of  $300,  on  open  book  account, 
which  is  due  in  thirty  days,  and  I  will  accept  his  thirty-day  sight  draft  on 
me  for  this  amount  payable  to  your  order. " 

This  is  a  virtual  acceptance,  absolute  in  its  terms,  and  binds 
Marsh  in  the  event  Burk  takes  the  draft  on  the  strength  of 
this  communication  from  Marsh. 

QUESTIONS 

1.  What  is  a  bill  of  exchange? 

2.  How  many  parties  are  there  to  a  bill  of  exchange  and  what  are 
they  called? 

3.  (a)  What  is  a  bank  draft?     {b)  Explain  its  use. 

4.  Distinguish  between  foreign  and  inland  bills  of  exchange.     Dis- 
tinguish between  domestic  and  foreign  bills  of  exchange. 

5.  How  are  foreign  bills  usually  drawn? 

6.  What  is  a  time  draft? 

7.  What  is  a  sight  draft? 

8.  What  use  is  made  of  drafts? 

9.  Is  a  bill  of  exchange  transferable?    Explain. 

10.  What  is  acceptance  as  applied  to  drafts?    How  is  it  made? 

11.  What  is  the  acceptor's  obligation? 

12.  When  should  a  draft  be  presented  to  the  drawee  for  acceptance? 

13.  When  the  drawee  refuses  to  accept,  what  is  said  of  the  draft? 

14.  What  is  an  acceptance  for  honor?     Explain. 

15.  What  is  a  virtual  acceptance?    Explain. 

4.   CHECKS 

Definition.  —  A  check  is  an  order  to  a  bank  upon  demand  to 
pay  to  the  order  of  some  person  named,  or  to  bearer,  a  sum  of 
money  to  be  charged  to  the  account  of  the  maker. 


CHECKS  159 

A  check  is  drawn  by  a  party  having  money  on  deposit  in 
the  bank  and,  as  shown  in  the  definition,  is  a  special  form  of  bill 
of  exchange  with  the  bank  as  drawee.  A  check  is  intended  for 
immediate  payment  upon  presentation,  and  the  implied  con- 
tract of  the  drawer  is  that  the  bank  will  pay  the  check.  In 
case  it  does  not,  the  drawer  is  entitled  to  notice  of  dishonor, 
except  in  the  special  cases  provided  for  in  the  Uniform  Law. 

Check  must  be  Presented  without  Delay.  —  The  payee  of  a 
check  must  present  it  for  payment  within  a  reasonable  time,  or 
the  drawer  will  be  discharged  from  loss  occasioned  by  his  delay. 
What  would  be  a  reasonable  time  would  depend  upon  circum- 
stances, but  it  is  generally  considered  that  the  check  should  be 
presented  within  a  day  after  its  receipt. 

A  reasonable  time  for  the  presentment  of  a  check  is,  by  the  consensus 
of  authority,  limited  to  the  next  business  day,  or  if  the  drawee  bank  is  in 
another  place,  on  the  day  following  its  receipt  at  the  place  of  payment. 

—  Aebi  V.  Bank  of  Evansville,  124  Wis.  73. 

McCarthey  drew  a  check  on  Clark  and  Brothers,  bankers,  to  the 
order  of  Morrisen,  who  held  the  check  over  three  months  before  present- 
ing it  for  payment.  During  that  time  Clark  and  Brothers  had  failed,  but 
McCarthey  had  withdrawn  his  deposits  before  the  failure.  Held,  that 
McCarthey  was  not  released  from  liability  on  the  check,  as  he  had  not 
been  injured  by  the  delay  in  presentment. 

—  Morrisen  v.  McCarthey,  30  Mo.  183. 

Certified  Checks.  —  A  check  purports  to  be  drawn  upon  a 
deposit  made  by  the  drawer  in  the  bank  upon  which  it  is  drawn, 
and  although  in  fact  there  may  be  no  such  deposit,  it  is  still  a 
check. 

Checks  pass  freely  between  parties  as  money,  yet,  unless  the 
drawer  is  known  to  have  on  deposit  in  the  bank  funds  sufficient 
to  meet  the  check,  or  unless  his  solvency  is  known,  a  person  is 
not  safe  in  accepting  the  check.  It  is  therefore  customary  in 
such  cases  to  have  the  bank  certify  the  check,  that  is,  the  cashier 
or  teller  stamps  the  word  "Certified,"  or  "Accepted,"  and  the 
date  with  his  signature  on  the  face  of  the  check.  The  bank  then 
takes  the  amount  from  the  drawer's  deposit  and  puts  it  in  a 
separate  account.  The  result  is  that  the  check  is  thereafter  the 
check  of  the  bank  rather  than  of  the  drawer,  and  it  is  good  as 
long  as  the  bank  is  solvent.  When  the  holder  has  the  check 
certified,  the  bank  by  so  certifying  becomes  the  principal  and 


i6o  NEGOTIABLE  INSTRUMENTS 

only  debtor,  and  the  holder  by  accepting  the  certified  check 
discharges  the  drawer  and  all  indorsers.  But  if  the  drawer 
procures  the  certification  before  delivering  the  check,  he  is  not 
thereby  released  from  further  Hability. 

Russ  received  a  check  from  Minot,  on  the  First  National  Bank,  for 
$500.  Russ  did  not  have  an  account  in  the  bank  and  as  he  did  not  wish 
to  carry  $500  about  on  his  person  he  took  the  check  to  the  bank  and  had 
it  certified.  By  this  act  Minot  is  relieved  from  further  Hability.  The 
bank  alone  is  liable  to  Russ  and  in  case  it  fails,  Russ  will  have  to  bear 
the  loss. 

Had  Minot  procured  the  certification  before  delivering  the  check  he 
would  not  be  relieved  from  further  liability.  If  the  check  is  presented  for 
payment  within  a  reasonable  time,  and  not  paid  because  of  the  failure  of 
the  bank,  Minot  would  have  to  pay  it. 

Special  Statutes.  —  Some  state  laws  provide  a  definite  time 
during  which  a  check  may  be  presented  for  payment,  for  in- 
stance ten  days,  and  if  the  bank  fails  within  this  time  the  maker 
of  the  check  is  not  released  from  liability.  Other  states  make 
the  drawing  of  a  check  against  a  bank  in  which  the  drawer  has 
no  funds  a  criminal  offense  punishable  by  a  fine  and  imprison- 
ment, one  or  both.  The  laws  of  one's  own  state  should  be  con- 
sulted. 

QUESTIONS 

1.  What  is  a  check? 

2.  When  must  a  check  be  presented? 

3.  What  is  a  certified  check? 

4.  Under  what  condition  would  the  maker  of  a  check  that  had  been  cer- 
tified have  to  bear  the  loss  if  the  bank  failed? 

5.  Under  what  conditions  would  the  holder  of  a  certified  check  have 
to  bear  the  loss  in  case  the  bank  failed? 


5.   SPECIAL  FORMS  OF  NEGOTIABLE   INSTRUMENTS 

Special  forms  of  negotiable  instruments  other  than  those  men- 
tioned are  in  common  use,  namely:  certificate  of  deposit,  cashier's 
check,  voucher  check,  traveler's  check,  letter  of  credit,  express 
money  order,  post  office  money  order,  warehouse  receipt,  order 
bill  of  lading,  trade  acceptance,  collateral  note,  judgment  note, 
and  bond. 


SPECIAL  FORMS  i6i       J 

A  Certificate  of  Deposit  is  issued  by  a  bank  or  banker  show- 
ing that  a  certain  sum  of  money  has  been  deposited  there,       ■ 
payable  to  a  certain  person  or  to  his  order.  \ 

A  Cashier's  Check  is  a  check  issued  by  the  cashier  of  a      1 
bank  and  is  frequently  used  in  place  of  the  certified  check. 
It  is  an  order  on  a  bank,  signed  by  its  cashier,  payable  to  a 
certain  person  or  order.  i 

The  Voucher  Check  is  a  regular  check  to  which  is  added  a 
description  of  the  particular  account  that  is  being  paid.    The       I 
voucher  is  to  be  signed  by  the  one  authorized  to  receive  the  check,       ! 
and  when  it  is  signed  it  serves  as  a  receipt  for  payment  of  a 
particular  account,  while  a  canceled  check  serves  only  as  a  receipt 
for  payment  of  a  certain  sum. 

Travelers'  Checks  are  drafts  for  small  amounts  which  are 
procured  from  banks  or  from  express  companies.  They  are 
useful  to  travelers,  as  they  can  be  cashed  in  any  country  as 
money  is  needed  for  expenses. 

A  Letter  of  Credit  is  a  form  of  draft  which  may  be  purchased       ; 
at  banks  dealing  in  this  form  of  exchange.     It  is  payable,  in       \ 
whole  or  in  part,  at  the  convenience  of  the,purchaser  and  serves 
very  much  the  same  purpose  that  travelers'  checks  serve.  ■ 

Money  Orders,  which  may  be  purchased  from  express  com- 
panies  or   at  a  post  office,  are  orders  on  the  issuing  agency       ] 
payable  at  a  specified  branch  and  are  used  to  transmit  funds       i 
from  one  place  to  another.    Either  express  or  post  oihce  money       i 
orders  permit  one  transfer  by  indorsement.  j 

Warehouse  Receipts  are  receipts  given  for.  salable  commodi-       ] 
ties  which  are  stored.    A  complete  sale  can  be  effected  by  selling       \ 
the  commodity  and  indorsing  the  warehouse  receipt  to  the  pur- 
chaser.   In  a  few  states  the  warehouse  receipt  is  not  negotiable.        ! 

The  Order  Bill  of  Lading  is  issued  by  transportation  com- 
panies to  shippers  or  consignors.    It  is  a  receipt  and  a  contract       j 
which  may  be  used  by  the  consignor  to  secure  advance  pay- 
ment on  a  consignment.    This  he  does  by  indorsing  the  bill  of 
lading  to  his  banker  to  secure  a  draft  on  the  consignee,  which 
the  bank  takes  for  collection  and  may  cash  in  advance.     The        ' 
bank,  through  its  correspondent,  will  require  payment  by  the        i 
consignee  before  delivering  the  bill  of  lading  to  him.  \ 


i62  NEGOTIABLE  INSTRUMENTS 

Trade  Acceptance.  —  A  special  form  of  bill  of  exchange, 
known  as  a  trade  acceptance,  has  recently  been  authorized  by 
the  Federal  Reserve  Act  and  is  in  common  commercial  use. 

A  trade  acceptance  is  defined  by  the  Federal  Reserve  Board 
as  "  a  bill  of  exchange  drawn  by  the  seller  on  the  purchaser  of 
goods  sold,  and  accepted  by  such  purchaser."  It  differs  in  use 
from  a  promissory  note,  in  that  a  note  is  generally  used  to 
borrow  money  or  settle  past  due  obligations,  whereas  the  trade 
acceptance  shows  on  its  face  that  it  was  given  for  a  current 
transaction  involving  the  sale  of  goods.  In  Great  Britain  the 
trade  acceptance  is  in  general  use  in  financing  mercantile  trans- 
actions. A  similar  practice  has  begun  in  this  country,  and 
under  the  encouragement  of  the  Federal  Reserve  Board  it  is 
expected  that  it  will  rapidly  become  the  usual  method  of  financ- 
ing sales. 

The  advantages  of  a  trade  acceptance  are  that  the  credit 
created  by  the  sale  becomes  immediately  available  to  the  seller, 
by  discounting  the  "acceptance,  instead  of  being  tied  up  in  a 
book  account;  the  date  of  payment  is  definitely  fixed,  and  less 
liable  to  be  unduly  extended;  and  if  legal  proceedings  are 
necessary  for  collection  they  are  much  more  simple  and  easy. 

A  Collateral  Note  is  one  to  which  is  added  a  certificate 
stating  that  the  maker  has  deposited  with  the  payee  certain 
securities,  such  as  bonds,  as  collateral  to  secure  the  payee  against 
default  in  payment  and  authorizes  the  payee  to  sell  the  securities 
in  case  of  such  default. 

The  Judgment  Note  is  a  promissory  note  with  a  clause 
added  by  which  the  maker  confesses  judgment  in  case  the  note 
is  not  paid  when  due. 

Bond.  —  A  bond  is  a  written  promise,  under  seal,  usually 
one  of  a  series,  to  pay  a  certain  sum  of  money  (in  amounts 
varying  from  $50  to  $1000)  at  a  fixed  time  in  the  future,  usually 
ten  or  more  years,  and  bearing  interest  at  a  fixed  rate  payable 
annually  or  semiannually. 

Most  bonds  are  negotiable.  A  negotiable  bond  might  be  con- 
sidered a  promissory  note  under  seal.  They  are  issued  by  the 
United  States  government,  states,  counties,  cities,  towns,  and 
business  corporations  for  the  purpose  of  borrowing  money.     In 


NEGOTIATION  163 

the  hands  of  the  owner  they  may  be  used  as  security  for  pro- 
curing loans  and  for  this  purpose  they  are  extensively  used. 

Bonds  are  usually  secured  by  a  mortgage  or  deed  of  trust 
of  the  property  of  the  borrower,  which  is  described  on  the  bonds 
and  by  virtue  of  which  the  property  is  held  in  trust  for  the 
bondholders.  Such  bonds  are  called  mortgage  bonds.  Bonds 
may  also  be  issued  without  other  security  than  the  credit  of 
the  borrower  and  are  called  debenture  bonds.  Coupon  bonds 
are  payable  to  the  holder  and  have  attached  to  them  interest 
coupons  which  may  be  cut  off  by  the  owner  and  cashed  as  the 
interest  falls  due.  Registered  bonds  are  payable  to  a  specified 
person  whose  name  is  registered  by  the  government  or  corpo- 
ration selling  the  bonds  and  the  interest  is  paid  direct.  They 
are  transferable  only  by  indorsement  and  registering  the  name 
of  the  transferee.  The  registering  of  bonds  is  a  measure  of  pro- 
tection to  the  owner,  as  in  case  they  are  lost  or  stolen  no  one  but 
the  true  owner  can  recover  on  them. 

QUESTIONS 

1.  What    is    (a)   a    cashier's    check,    {b)   a    certificate    of    deposit, 
(c)  a  voucher  check,   (d)  a  traveler's  check,  (e)  a  letter  of  credit? 

2.  What   is   (a)  a   money   order,    (b)   a   warehouse  receipt,    (c)   an 
order  bill  of  lading? 

3.  What  is  (a)  a  collateral  note?     (b)  a  judgment  note? 

4.  What  is  a  trade  acceptance?    What  are  its  uses  and  advantages? 

5.  Define  a  bond.     How  are  bonds  used? 

6.  Classify  and  define  the  different  classes  of  bonds. 

I 
6.  NEGOTIATION 

Definition.  —  By  negotiation  we  mean  the  transfer  of  a  ne- 
gotiable instrument  from  one  person  to  another  in  such  a  way 
that  the  transferee  is  the  legal  holder  thereof. 

Assignability.  —  In  general  the  law  permits  the  assignment  of 
any  contract  for  the  payment  of  money  or  the  delivery  of  goods, 
(page  50).  In  an  assignment,  however,  the  title  passes  to  the 
assignee  subject  to  all  the  defenses  which  might  be  brought 
against  it  in  the  hands  of  the  original  owner.  It  is  in  this  par- 
ticular that  assignability  and  negotiability  differ. 


i64  NEGOTIABLE  INSTRUMENTS 

Thirty    days    after   date    I    promise    to    pay    to    Charles    E.    Boust 

One  Hundred Dollars. 

$100  W.  H.  Finch. 

While  this  is  not  a  negotiable  note,  as  it  is  not  payable  to 
"order"  or  to  ''bearer/'  it  may  be  a  good  contract  between  Finch 
and  Boust.  The  payee  may  transfer  this  instrument  but  the 
transfer  will  be  an  assignment  and  not  a  negotiation. 

Negotiability.  —  Negotiability  applies  to  all  written  promises 
or  orders  to  pay  money  to  ''order"  or  "bearer,"  which  conform 
to  the  requirements  of  a  negotiable  instrument,  and  all  such 
promises  or  contracts  may  be  transferred  or  assigned  by  one 
party  to  another  by  indorsement  and  delivery  or  in  some  cases 
by  delivery  only.  Such  transfer  constitutes  negotiation.  When 
a  negotiable  instrument  is  negotiated  from  one  party  to  another 
it  passes  free  from  certain  defenses  that  might  have  been  en- 
tered against  it  in  the  hands  of  the  original  holder,  and  the  trans- 
feree has  the  right  to  collect  it. 

Principal  Characteristic.  —  The  principal  characteristic  of  a 
negotiable  instrument,  and  that  which  makes  it  pass  freely  as  a 
substitute  for  money,  is  that  in  the  hands  of  a  third  party  who 
purchases  it  in  good  faith  and  for  value  before  it  is  due,  it  is  en- 
forceable, while  the  original  holder,  perhaps,  could  not  enforce 
it  for  the  reason  that  the  party  who  made  the  instrument  has  a 
good  defense  or  counterclaim. 

Vance  gave  his  son  a  promissory  note  for  $500  without  receiving  any 
consideration  for  it.  The  son  cannot  collect  of  the  father,  as  between  the 
father  and  son  lack  of  consideration  is  a  defense,  but  had  the  son  trans- 
ferred this  note  before  maturity  by  indorsing  it  to  an  innocent  party  for 
value,  the  innocent  party  could  collect  from  the  father,  and  no  defense 
could  be  offered. 

Connel  holds  a  note  for  $400  against  Hartman;  Connel  is  indebted  to 
Hartman  for  $150  for  services  rendered.  Should  Connel  hold  this  note 
until  it  is  due  and  demand  payment  of  Hartman,  the  counterclaim  of  $150 
which  Hartman  holds  against  Connel  can  be  deducted  from  the  amount 
of  the  note  and  the  difference  paid.  Should  Connel  transfer  this  note  before 
it  is  due,  by  indorsing  it  to  an  innocent  purchaser  for  value,  the  counter- 
claim could  not  be  enforced  against  the  innocent  purchaser. 

Indorsement.  —  Negotiable  paper  is  transferred  by  indorse- 
ment and  delivery,  that  is,  by  the  payee  signing  his  name  on  the 
back  and  handing  it  over  to  the  transferee.    When  an  instru- 


NEGOTIATION  165 

ment  is  made  payable  to  bearer,  an  indorsement,  though  usually 
made,  is  not  necessary  to  give  a  good  title  to  the  transferee, 
delivery  being  sufficient,  but  if  it  is  payable  to  a  certain  person 
or  order,  the  indorsement  is  necessary  to  give  title. 

Kinds  of  Indorsements.  —  Indorsements  may  be  blank,  in 
full,  or  special,  and  may  be  unqualified  or  qualified. 

The  first  indorsement  should  be  written  on  the  left  or  stub 
end  of  the  instrument  about  one  inch  from  the  top. 

Blank  indorsement: 

James  C.  Barry 


In  a  blank  indorsement  the  payee  simply  writes  his  name 
on  the  back  of  the  instrument  the  same  as  it  appears  in  the 
instrument,  and  it  is  then  payable  to  bearer.  Any  holder  may 
convert  a  blank  indorsement  into  a  full  or  special  indorsement 
by  writing,  "Pay  to  order  of  (holder's  name)"  over  the  blank 
indorsement. 

When  a  payee's  name  is  incorrectly  spelled  in  the  instrument 
he  should  indorse  with  the  name  as  given  in  the  instrument  and 
below  sign  his  name  properly  spelled. 

It  is  not  safe  to  carry  about  negotiable  paper  indorsed  in 
blank,  as  it  is  payable  to  bearer  and  if  it  is  lost  or  stolen  the 
holder  might  be  able  to  recover  on  it. 

Full  or  special  indorsement: 


Pay  to  order  of 
L.  W.  Newman 
James  C.  Barry 


A  full  indorsement  does  not  destroy  the  negotiability  of  the 
instrument.  It  could  not  in  this  case  be  negotiated  or  trans- 
ferred again  without  L.  W.  Newman's  indorsement. 

An  unqualified  indorsement  places  no  restrictions  on  the 
further  negotiation  or  transfer  of  the  instrument  or  upon  the 
indorser's  liability.  The  blank  and  full  indorsements  exhibited 
are  examples  of  unqualified  indorsements. 


i66 


NEGOTIABLE  INSTRUMENTS 


Qualified  indorsement: 


Without  recourse 

James 

C.  Barry 
or 

Pay  tc 

order  of 

L.  W. 

Newman  without 

recourse 

James  C. 

Barry 

A  qualified  indorsement  simply  passes  title  to  the  instru- 
ment without  rendering  the  indorser  liable  for  payment  in  case 
the  maker  fails.  The  indorser  is  liable,  however,  if  the  instru- 
ment is  not  a  good  contract. 

Restrictive  indorsement: 

Pay  L.  W .   Newman 

only 

James  C.  Barry 

A  restrictive  indorsement  destroys  the  negotiability  of  the 
instrument.  It  is  payable  to  the  indorsee  only.  Other  forms 
are:  "  Pay  L.  W.  Newman  for  collection,"  which  means  that 
Newman  is  an  authorized  agent  for  the  collection  of  the  instru- 
ment; or,  ''  Pay  Merchants  Bank  for  deposit  only,"  which  re- 
stricts the  instrument  to  use  for  deposit  to  the  account  of  the 
indorsee.  This  is  a  common  indorsement  when  deposits  are 
sent  to  the  bank  by  a  messenger. 


Indorsement  with  a  waiver: 


Protest  and  notice 

waived 

James  C.  Barry 


By  waiving  protest  and  notice  the  indorser  gives  up  the 
right  of  protest  and  notice  of  nonpayment  in  case  the  maker 
fails  to  pay  and  he  is  liable  unconditionally.  Protest  is  fully 
explained  later. 


Indorsing  payment: 


Aug.  12,  19 — 
Received  One  Hundred 
Dollars  on  the  within 
note. 


NEGOTIATION  167 

When  part  payment  is  made  on  a  promissory  note  the  amount 
paid  is  indorsed  on  the  back  of  the  note  as  shown. 

The  one  receiving  payment  does  not  sign  his  name;  the  fact 
that  the  authorized  payee  has  possession  of  the  note  indicates 
sufficiently  that  he  was  the  one  who  received  the  payment. 

Obligation  of  Indorser.  —  By  indorsing  an  instrument  un- 
qualifiedly the  indorser  becomes  responsible  to  the  transferee 
or  rightful  holder  of  the  instrument  for  pa)nTient  in  case  the 
maker  fails.  In  order  to  hold  the  indorser  responsible  the  holder 
must  fulfill  certain  requirements  as  to  protest  and  notice  of 
nonpayment  which  are  fully  explained  later. 

In  indorsing  an  instrument,  regardless  of  the  kind  of  in- 
dorsement used,  the  indorser  admits  and  guarantees  that  the 
instrument  is  genuine,  that  he  has  good  title  to  it,  that  all  prior 
parties  had  capacity  to  contract,  and  that  he  has  no  knowledge 
of  any  fact  which  would  impair  the  vaHdity  of  the  instrument 
or  render  it  valueless. 

Indorsement:  Where  and  How  Made.  —  The  indorsement 
must  be  on  the  instrument  itself  or  on  a  paper  attached  to  it. 
The  indorsement  must  relate  to  the  entire  instrument;  a  part 
cannot  be  transferred  by  indorsement,  or  a  part  to  one  party 
and  the  remainder  to  another. 

David  Bush  gave  a  note  to  Kiddell  for  £473  sterling.  Kiddell  after- 
wards made  the  following  indorsement:  "I  assign  over  to  Hudson  Hughes 
the  sum  of  $1930.50  as  part  of  this  note  of  hand.     Benjamin  Kiddell.  " 

Afterwards  he  made  another  indorsement  and  assigned  the  residue  to 
Hughes.  The  court  held  that  each  indorsement  was  bad,  as  it  affected 
only  part  of  the  note,  and  that  being  so,  two  bad  indorsements  would  not 
constitute  one  good  one.  — Hughes  v.  Kiddell,  2  Bay  (S.  C.)  324. 

Any  writing  intended  to  transfer  the  title  to  the  instrument 
will  be  construed  as  an  indorsement. 

LiNNEUS,  May  30,  1873. 

I  promise  to  pay  James  H.  Blethen,  or  order,  $137.50  at  ten  per  cent 
interest,  on  demand.  Ebenezer  Tozier. 

On  the  back  of  this  note  was  written,  "I  this  day  sold  and  delivered  to 
Catherine  M.  Adams  the  within  note.  James  H.  Blethen.  ^ ' 

Held,  that  Blethen  assumed  all  of  the  liability  of  an  ordinary  indorser. 
This  indorsement  but  expressly  stated  what  every  indorsement  impliedly 
states,  a  sale  or  transfer  of  the  note.  The  liability  of  an  indorser  can  be 
limited  or  qualified  only  by  express  terms. 

—  Adams  v.  Blethen,  66  Maine  ip. 


i68  NEGOTIABLE  INSTRUMENTS 

Presentment  and  Demand.  —  To  fix  the  liability  of  the 
drawer  or  indorser,  the  first  step  is  presentment  to  the  drawee 
or  maker  and  demand.  Bills  of  exchange  payable  a  certain 
time  after  sight  are  presented  for  acceptance;  notes,  checks, 
and  bills  payable  on  demand  or  sight  are  presented  for  payment. 
Presentment  consists  in  exhibiting  the  instrument  to  the  payer 
or  handing  it  to  him,  while  demand  is  a  request  to  either  accept 
or  pay  it,  as  the  case  may  be.  If  the  paper  is  payable  at  a  bank, 
the  mere  fact  that  at  the  time  of  maturity  the  paper  is  at  the 
bank  at  which  it  is  payable  is  sufficient  presentment  and  de- 
mand, provided  the  bank  has  knowledge  of  the  fact. 

Presentment  and  demand  must  always  be  made  at  the  place 
designated  in  the  instrument.  Promissory  notes  are  often 
drawn  payable  at  a  particular  bank,  in  which  case  they  are 
called  bank  notes,  but  the  place  of  payment  designated  may  be 
some  other  place  than  a  bank. 

A  demand  for  payment  was  made  by  a  letter  addressed  to  the  maker 
at  a  business  building  in  Los  Angeles,  which  was  not  shown  to  have  been 
the  place  of  payment  named  in  the  note.  The  demand  was  held  insuf- 
ficient as  not  having  been  made  at  the  proper  place  and  also  because  there 
was  no  presentment. — Merchants  Bank  v.  Bentel,  15  Calif.  Appeals  170. 

In  case  there  is  no  designated  place  of  payment,  it  is  said 
that  the  paper  is  payable  generally.  This  means  that  it  is  pay- 
able at  the  place  of  business  or  residence  of  the  maker  of  the 
note  or  acceptor  of  the  draft,  and  when  he  has  a  known  place 
of  business,  that  should  have  preference  over  his  residence. 

A  note  was  payable  generally  at  Union,  Iowa.  It  was  presented  at 
the  maker's  former  place  of  business  and  at  a  bank  in  town,  but  no  further 
inquiry  was  made.    Held,  the  presentment  and  demand  were  insufficient. 

—  Trease  v.  Haggin,  107  Iowa  458. 

If  there  is  no  place  of  payment  specified  and  the  maker  or 
acceptor  has  no  known  place  of  business  or  residence,  then  it 
may  be  presented  to  the  person  to  make  pa5mient  wherever  he 
can  be  found,  or  at  his  last  known  place  of  business  or  residence. 
Failing  to  present  does  not  discharge  the  maker  or  acceptor. 

Time.  —  Presentment  for  payment  must  be  made  on  the  day 
on  which  the  instrument  falls  due,  unless  some  "  inevitable 
accident  "  or  other  legal  obstacle  prevents  such  presentment. 


NEGOTIATION  169 

The  fact  that  both  the  holder  and  indorser  know  that  the  note 
will  not  be  paid  when  due  and  that  the  maker  is  dead  and  the 
estate  insolvent  does  not  relieve  the  holder  from  his  obligation 
to  make  presentment  and  give  notice  of  dishonor. 

Maturity.  —  Drafts,  bills  of  exchange,  and  promissory  notes 
formerly  had  days  of  grace,  that  is,  three  days  were  added  to 
the  time  stated  in  which  the  instrument  should  become  due. 
The  purpose  of  this  was  to  give  the  payer  in  the  early  days  of 
slow  transportation  an  opportunity  to  arrange  for  payment. 

Days  of  grace  have  been  abolished  by  statute  in  all  the 
states  except  in  Massachusetts  and  New  Hampshire,  where 
grace  is  allowed  on  inland  bills  of  exchange  payable  at  sight, 
and  in  Texas,  where  grace  is  allowed  on  all  paper  payable  other- 
wise than  on  demand. 

If  by  its  terms  an  instrument  is  payable  a  certain  number 
of  days  after  date,  the  day  on  which  the  instrument  was  drawn 
is  excluded;  thus  a  note  dated  January  10,  payable  thirty  days 
after  date,  is  due  February  9.  If  the  date,  of  maturity  is  a  legal 
holiday  or  Sunday,  the  instrument  is  payable  on  the  next  suc- 
ceeding business  day. 

Where  days  of  grace  are  allowed,  the  date  of  maturity  is 
extended  for  three  days,  but  if  the  last  day  of  grace  falls  on  a 
holiday  or  Sunday,  the  instrument  is  payable  on  the  preceding  day. 

But  when  the  time  is  reckoned  by  the  month,  as  it  is  when 
the  instrument  is  made  payable  one  or  more  months  after  date, 
the  note  falls  due  on  the  corresponding  date  of  the  month  in 
which  it  is  due.  Thus  a  note  dated  January  31,  19 — ,  due  one 
month  after  date,  would  mature  February  28,  19 — (or  February 
29,  19 — ),  where  no  grace  is  allowed,  and  if  dated  February  28, 
it  would  be  due  March  28.  . 

,  An  instrument  dated  November  8,  and  payable  twelve  months  after 
date,  was  held  to  have  matured  on  November  8  of  the  following  year, 
and  a  presentment  on  November  9  was  not  proper. 

—  Lewy  V.  Winkelson^  135   La.  105. 

Not  only  must  the  presentment  for  payment  be  made  on  the 
right  day,  but  it  must  be  made  at  a  reasonable  time  on  that  day. 
If  presented  at  a  bank,  it  must  be  during  banking  hours.  In 
other  cases  the  time  must  be  at  a  reasonable  hour. 


I70  NEGOTIABLE  INSTRUMENTS 

Presentment  for  payment  was  made  at  the  maker's  house  between 
eleven  and  twelve  o'clock  at  night,  the  maker  being  called  up  from  bed 
for  that  purpose.  Held,  that  the  presentment  was  at  an  unreasonable  hour, 
and  the  demand  was  not  sufficient.  —  Dana  v.  Sawyer,  22  Maine  244. 

A  note  payable  at  a  bank  was  presented  after  banking  hours  and  the 
clerk  still  there  refused  payment,  although  funds  had  been  left  with  the 
regular  teller  to  pay  it.  Held,  that  the  presentment  and  demand  were  not 
sufficient. 

—  Newark  India  Rubber  Mfg.  Co.  v.  Bishop,  3  E.  D.  Smith  (N.  Y.)  48. 

The  demand  must  be  made  by  the  holder  or  his  duly  au- 
thorized agent,  upon  the  proper  person,  who  is  the  maker  or 
acceptor,  or,  if  he  is  dead,  his  personal  representative. 

A  note  was  signed  "A.  G.  Cunningham,  Agent."  Nothing  appeared 
on  the  face  of  the  note  showing  for  whom  he  professed  to  act.  Present- 
ment and  demand  of  payment  was  made  upon  S.  A.  Cunningham,  the  wife 
of  A.  G.  Cunningham.  Held,  that  the  demand  was  insufficient.  By  the 
signature  the  note  was  made  by  A.  G.  Cunningham,  and  the  demand  to 
bind  the  indorser  must  be  made  on  him.  — Stinson  v.  Lee,  68  Miss.  113. 

Notice  of  Dishonor.  —  After  payment  has  been  refused  and 
the  instrument  dishonored,  notice  of  such  dishonor  must  be 
given  to  the  drawer  of  a  bill  of  exchange  and  to  each  indorser 
of  a  bill  or  note,  and  any  drawer  or  indorser  to  whom  such 
notice  is  not  given  is  discharged. 

This  notice  under  the  common  law  must  be  given  within 
a  reasonable  time,  but  by  the  Negotiable  Instruments  Law 
it  is  expressly  stipulated  when  the  notice  is  to  be  given.  If 
the  parties  reside  in  the  same  place,  it  must  be  given  the  follow- 
ing day.  If  they  reside  in  different  places,  and  notice  is  sent 
by  mail,  it  must  be  deposited  in  the  post  office  so  as  to  go  the 
day  following  the  dishonor;  if  given  otherwise  than  through 
the  mail,  it  must  be  done  in  time  to  be  received  as  soon  as  the 
mailed  notice  would  have  been. 

The  bank  was  the  holder  of  a  promissory  note,  payable  at  said  bank, 
made  by  James  H.  Jenkins  and  Anthony  Debrell,  and  indorsed  as  follows, 
"A.  Debrell,  S.  Turney,  John  W.  Simpson."  Turney's  residence  was 
within  one  mile  of  the  bank.  The  note  was  due  on  February  i,  and  was 
protested  on  that  day.  On  February  3  notice  was  sent  Turney  from  the 
bank.  Simpson,  the  next  indorser,  gave  him  no  notice.  The  court  held 
that  the  notice  was  not  given  in  time.  If  it  had  been  given  by  Simpson 
on  the  3d,  it  would  have  been  good,  as  each  indorser  is  given  a  day  to  notify 
his  prior  indorser,  but  this  was  not  done.  The  notice  given  was  not  valid 
as  to  the  bank,  so  could  not  be  to  any  one  to  whose  benefit  it  would  inure. 

—  Simpson  v.  Turney,  5  Humph.  (Tenn.)  419. 


NEGOTIATION  171 

The  notice  may  be  given  by  the  holder  or  his  agent  or  by 
any  party  who  may  have  to  pay  the  debt  and  who  is  entitled 
to  be  reimbursed. 

A  note  with  two  indorsers  was  dishonored  and  notice  given  by  the 
holder  to  both  indorsers.  The  second  indorser  sued  the  first,  and  it  was 
held,  that  the  notice  was  sufficient;  that  it  was  not  necessary  for  the 
second  indorser  to  give  notice  to  the  first.  It  was  sufficient  that  notice 
was  given  him,  and  the  notice  of  the  holder  inures  to  the  benefit  of  any 
indorser. — Stafford  v.  Vates,  18  Johns.  (N.  Y.)  327. 

Notice  to  Indorsers.  — •  When  there  are  several  indorsers  the 
last  indorser  can  look  to  the  previous  one,  or  in  fact  to  any  one 
who  has  indorsed  before  him,  as  well  as  to  the  maker  or  ac- 
ceptor. Therefore  it  often  happens  that  the  holder  upon  dis- 
honor of  the  instrument  gives  notice  to  the  last  indorser,  and 
he  in  turn  gives  notice  to  the  prior  indorser,  to  whom  he  will 
look  to  be  reimbursed  in  case  he  is  obliged  to  pay  the  instru- 
ment. 

The  holder  of  a  note  notified  the  third  indorser  by  mail  and  inclosed 
notices  for  the  second  and  first  indorsers.  The  third  indorser  notified  the 
second  and  inclosed  notice  for  the  first.  The  second  indorser  received  the 
notice  on  the  6th,  and  mailed  notice  to  the  first  indorser  on  the  7th,  in  time 
to  go  on  the  second  mail  closing  at  i  .30  p.m.  The  first  mail  closed  at  9.30  a.m. , 
and  defendant  contended  that  notice  should  have  been  sent  by  that  mail. 
The  court  held  that  the  notice  was  sufficient  and  that  plaintiff  had  used  due 
diligence  in  giving  notice.  —  Smith  v.  Poillon,  87  N.  Y.  590. 

The  notice  of  dishonor  may  be  either  oral  or  written,  and 
can  be  either  delivered  personally  or  sent  through  the  mail. 
Some  cases  hold  that  the  postal  service  cannot  be  used  when 
the  parties  reside  in  the  same  town,  but  by  statute  in  some 
states  the  post  office  can  be  used  even  in  that  case. 

Hobbs  took  a  written  notice  of  dishonor  to  Sfraine's  office,  and  finding 
no  one  there,  left  it.  The  court  instructed  the  jury  that  if  they  deter- 
mined that  it  was  left  in  a  conspicuous  place,  it  was  sufficient.  Held,  that 
this  was  correct.  It  is  sufficient  to  charge  the  indorser  if  the  notice  is  de- 
livered personally,  left  at  the  indorser's  place  of  residence  or  business,  or 
deposited  in  the  post  office  addressed  to  him  at  his  residence  or  place  of 
business  with  the  postage  prepaid. — Hohhs  v.  Straine,  149  Mass.  212. 

Waiver.  —  Notice  may  be  waived,  and  frequently  the  in- 
dorser adds  ''  protest  waived,"  the  effect  of  this  being  to  waive 
presentment  and  notice  of  dishonor  as  well  as  formal  protest. 


172  NEGOTIABLE  INSTRUMENTS 

Protest.  —  Protest  is  a  formal  declaration  in  writing  and 
under  seal,  made  by  a  notary  public,  certifying  to  the  demand 
and  dishonor.  When  it  is  impossible  to  command  the  services 
of  a  notary,  protest  may  be  made  by  a  resident  of  the  place,  in 
the  presence  of  two  respectable  citizens  who  sign  as  witnesses  of 
the  act  of  presenting.  Protest  is  required  by  law  in  the  case 
of  foreign  bills  of  exchange,  and  is  customary  with  other  dis- 
honored instruments  also.  The  notary  (or  resident)  makes  the 
presentment  and  demand,  and  upon  refusal  issues  a  certificate 
of  protest. 

After  attaching  the  instrument  to  this  certificate  the  notary 
mails  a  regular  form  notice  to  all  indorsers. 

Irregular  Indorser.  —  Frequently  there  appears  on  the  back 
of  a  bill  or  note  the  name  of  a  person  who  is  not  a  party  to  it 
and  to  whom  it  was  never  indorsed.  Such  a  person  is  known 
as  an  irregular  or  anomalous  indorser.  The  object  of  such  an 
indorsement  is  to  give  additional  security  to  the  payee.  A 
person  so  signing  his  name  is  liable  as  indorser,  according  to 
these  rules:  if  the  instrument  is  payable  to  a  third  person,  he 
is  liable  to  the  payee  and  all  subsequent  parties;  if  payable 
to  the  order  of  the  maker  or  drawer,  or  to  bearer,  he  is  liable  to 
all  parties  subsequent  to  the  maker  or  drawer;  and  if  he  has 
signed  for  the  accommodation  of  the  payee,  he  is  liable  to  all 
parties  subsequent  to  the  payee. 

Such  indorsements  are  frequently  used  when  the  payee  of 
a  note  wishes  to  get  it  discounted  at  a  bank,  that  is,  to  get  the 
money  on  it.  The  bank  requires  an  indorser,  and  the  payee 
gets  a  friend  to  indorse  the  note.  The  irregular  indorser  is 
liable  to  the  bank  the  same  as  any  other  indorser. 

A  note  was  made  by  a  railway  company  and  indorsed  by  four  individuals 
not  otherwise  parties.  It  was  held  that  their  liability  was  that  of  irregular 
indorsers,  that  as  such  they  were  entitled  to  the  rights  of  indorsers,  and 
could  not  be  held  liable  on  the  note  without  notice  of  presentment  and 
demand.  —  Rockjield  v.  First  National  Bank,  77  Ohio  State  311. 

Accommodation  Party.  —  An  accommodation  party  is  one 
who  has  signed  the  instrument  as  maker,  drawer,  acceptor  or 
indorser,  without  receiving  value  therefor,  for  the  purpose  of 
lending  his  name  to  some  other  person.    Such  party  is  liable  to 


NEGOTIATION  173 

any  holder  for  value  and  to  all  parties  except  the  party  ac- 
commodated. For  example,  Marsh  wishes  to  borrow  money, 
but  the  bank  will  not  lend  it  on  his  note.  Marsh  goes  to  Colby, 
who  makes  a  note  to  Marsh's  order,  which  he  discounts  at  the 
bank.  Colby  is  Hable  to  the  bank  and  all  subsequent  holders, 
but  is  not  liable  to  Marsh. 

An  accommodation  party  has  the  same  right  under  the 
statute  as  to  notice  of  dishonor  as  any  other  party. 

A  note  made  by  a  corporation  was  indorsed  for  its  accommodation  by 
certain  of  the  directors.  Held,  that  the  indorsers  were  entitled  to  notice 
of  dishonor,  the  same  as  any  other  indorsers  and  failure  to  give  the  notice 
was  not  excused  because  they  were  directors  of  the  maker. 

—  Houser  v.  Fayssoux,  168  N.  C.  i. 

The  Holder  or  Payee.  —  We  have  yet  to  consider  the  posi- 
tion and  rights  of  the  holder  or  payee  of  the  instrument.  Whether 
he  be  the  original  payee  or  an  indorsee,  he  is  the  party  in  whose 
hands  the  instrument  rests  and  who  has  the  right  to  the  money 
which  it  represents.  We  have  already  learned  that  negotiable 
instruments  have  a  distinguishing  characteristic  not  possessed 
by  any  other  contract,  which  is  that  when  they  have  passed  into 
certain  parties'  hands  under  particular  conditions  they  are  valid 
and  enforceable,  even  though  not  valid  between  the  original 
parties  to  them.  A  holder  possessing  such  rights  is  called  a 
holder  in  due  course. 

Holder  in  Due  Course.  —  A  holder  in  due  course  is  a  holder 
who  has  taken  the  instrument  under  the  following  conditions: 

1.  That  it  is  complete  and  regular  upon  its  face; 

2.  That  he  became  the  holder  of  it  before  it  was  overdue, 
and  without  notice  that  it  had  been  previously  dishonored,  if 
such  was  the  fact; 

3.  That  he  took  it  in  good  faith  and  for  value; 

4.  That  at  the  time  it  was  negotiated  to  him  he  had  no 
notice  of  any  defects  in  the  instrument  or  in  the  title  of  the 
person  negotiating  it. 

The  instrument  must  be  complete  and  regular  on  its  face. 

A  note  recited  that  it  was  payable  "On  or  before  four after  date." 

It  was  held  that  the  instrument  was  not  complete  and  regular  on  its  face, 
and  that  one  who  took  such  an  instrument  could  not  be  a  holder  in  due 
course.  —  Philpott's  Estate,  169  Iowa  555. 


174  NEGOTIABLE  INSTRUMENTS 

He  must  be  a  holder  "  for  value."  He  must  have  given 
value  for  the  instrument  or  must  have  taken  it  after  value  was 
given  by  another.  This  is  the  provision  of  the  Negotiable 
Instruments  Law  and  changes  the  rule  in  many  states,  which  was 
that  to  be  a  holder  for  value  a  person  must  have  parted  with  a 
present  consideration.  Where  the  holder  comes  into  possession 
of  the  instrument  through  false  pretenses  or  for  wrong  motives 
he  cannot  be  said  to  be  a  holder  in  due  course. 

DeWitt,  being  acquainted  with  Perkins  and  knowing  that  he  was 
responsible,  purchased  shortly  before  maturity  a  promissory  note  against 
him  for  $300,  paying  therefor  $5.  As  between  the  original  parties  the  note 
was  invalid  for  want  of  consideration.  Held,  that  DeWitt  was  not  a  holder 
in  due  course.  The  consideration  paid  by  him  was  nominal.  It  was  on 
the  face  of  it  merely  either  a  gift  or  a  subterfuge  to  get  the  note  into  other 
hands  to  cut  off  the  defense  of  want  of  consideration. 

—  DeWitt  V.  Perkins,  22  Wis.  473. 

We  have  discussed  in  the  subject  of  contracts  what  is  neces- 
sary to  constitute  a  valuable  consideration. 

The  purchaser  of  a  negotiable  instrument  must  take  it  be- 
fore maturity.  The  mere  fact  that  a  note  or  bill  is  past  due  is 
considered  sufficient  notice  of  defect  to  put  the  purchaser  on 
his  guard,  and  a  party  buying  past  due  paper  is  not  a  holder  in 
due  course.  Likewise,  if  the  purchaser  of  a  bill  of  exchange  has 
notice  that  it  has  been  presented  for  acceptance  and  dishonored, 
he  is  not  a  holder  in  due  course. 

The  Fairfield  County  National  Bank  sued  on  a  note  on  which  Hammer 
had  defenses  against  the  original  payee  and  first  indorser.  The  note  had  not 
been  paid  at  maturity  and  the  Fairfield  County  National  Bank  took  the 
note  after  maturity.  It  was  held  that  the  Fairfield  County  National  Bank 
was  not  a  holder  in  due  course  and  was  subject  to  the  defenses  available 
against  the  payee.  —  Fairfield  County  Nat.  Bank  v.  Hammer,  §9  Conn.  592. 

QUESTIONS 

1.  What  is  meant  by  "  negotiation  "? 

2.  What  contracts  are  assignable? 

3.  What  is  the  difference  between  assignability  and  negotiability? 

4.  Would  a  note  payable  one  year  after  the  maker  becomes  fifty  years 
old  be  negotiable?    Would  it  be  valid  for  any  purpose? 

5.  What  is  the  principal  characteristic  of  a  negotiable  instrument? 

6.  How  is  negotiable  paper  transferred  from  one  party  to  another? 

7.  When  may  an  instrument  be  negotiated  by  delivery? 


DEFENSES  175 

8.  Mention  the  different  kinds  of  indorsements. 

9.  What  is  the  effect  of  a  blank  indorsement? 

10.  How  can  a  blank  indorsement  be  changed  to  a  special  indorse- 
ment? 

11.  A  check  was  made  payable  to  John  Bartow  when  the  name  should 
have  been  John  Barstow.     How  should  it  be  indorsed? 

12.  What  is  the  effect  of  a  full  or  special  indorsement? 

13.  What  is  an  unqualified  indorsement? 

14.  What  is  the  effect  of  a  qualified  indorsement?     Give  an  example. 

15.  What  is  the  effect  of  a  restrictive  indorsement?     Give  an  example. 

16.  Explain  the  meaning  of  "  protest  and  notice  waived." 

17.  How  should  part  payment  be  indorsed  on  a  note? 

18.  What  does  the  indorser  of  a  negotiable  instrument  admit  and 
guarantee? 

19.  What  is  the  obligation  of  an  indorser? 

20.  Is  it  necessary  that  the  indorsement  be  made  in  any  particular 
place  or  way? 

21.  Is  it  allowable  to  indorse  a  part  of  the  amount  to  one  party? 

22.  Why  is  presentment  and  demand  necessary? 

23.  What  is  a  bank  note? 

24.  When  and  where  should  presentment  for  payment  be  made? 

25.  Explain  the  term  "  maturity  "  applied  to  drafts  and  notes. 

26.  Who  must  make  "  demand  "  and  upon  whom  must  it  be  made? 

27.  What  is  a  "  notice  of  dishonor  "? 

28.  To  whom,  how,  and  when  should  notice  of  dishonor  be  given? 

29.  When  there  are  several  indorsers,  how  is  each  affected  in  case  the 
note  is  dishonored? 

30.  What  is  a  protest  and  when  is  it  necessary? 

31.  Who  is  an  irregular  indorser? 

32.  What  is  the  object,  usually,  of  an  irregular  indorsement? 
^;^.   Who  is  an  accommodation  party? 

34.  What  rights  has  the  holder  or  payee? 

35.  Who  is  a  holder  in  due  course? 

36.  What  are  the  provisions  of  the  Negotiable  Instruments  Law  with 
reference  to  a  holder  "  for  value  "? 


7.   DEFENSES 

In  General.  —  It  can  be  stated  as  a  general  proposition  that 
a  holder  in  due  course  takes  title  free  from  all  defenses,  or,  as 
is  often  stated,  "  free  from  all  equities,"  except  such  as  affect 
the  very  existence  of  the  instrument  and  which  are  said  to 
constitute  absolute  defenses;  that  is,  defenses  which  may  be 
used  against  the  holder. 

■  i 


176  NEGOTIABLE  INSTRUMENTS 

Personal  Defenses.  —  Personal  defenses  arise  out  of  the 
transaction  and  relate  to  the  acts  or  conditions  surrounding 
the  instrument  rather  than  to  the  instrument  itself,  and  are 
good  and  available  as  between  the  original  parties.  They  are 
not  good  as  against  a  subsequent  holder  in  due  course. 

Fraud.  —  Fraud  is  generally  a  personal  defense  only,  but 
when  it  vitiates  the  entire  contract  it  is  available  to  the  maker 
as  an  absolute  defense,  if  he  can  show  that  he  was  not  negligent 
in  allowing  himself  to  be  defrauded. 

Maxwell  sold  securities  to  Childs  by  means  of  a  fraudulent  representa- 
tion as  to  their  value,  and  received  a  note  from  Childs  in  payment.  Childs 
could  refuse  to  pay  the  note  if  Maxwell  held  it  until  maturity,  on  the  ground 
that  it  had  been  secured  by  fraud.  If  Maxwell  should  transfer  the  note  to  a 
holder  for  value,  such  a  holder  could  enforce  the  note  against  Childs,  as  the 
defense  of  fraud  in  such  a  case  is  a  personal  one  and  does  not  affect  the  rights 
of  a  subsequent  holder  in  due  course. 

Duress.  —  Where  a  negotiable  instrument  is  obtained  through 
duress,  as  between  the  immediate  parties,  it  is  voidable.  The 
same  rule,  in  the  case  of  duress,  applies  to  negotiable  contracts 
as  applies  to  other  contracts. 

Lack  of  Consideration.  —  Lack  of  consideration  in  any  ex- 
ecutory contract  is  a  defense,  and  this  rule  applies  to  negotiable 
instrument  contracts  the  same  as  to  any  other  contract,  except 
when  the  instrument  comes  into  the  hands  of  a  subsequent 
holder  in  due  course;   then  it  ceases  to  be  a  defense. 

Counterclaims.  —  A  counterclaim  is  a  defense  as  between  the 
immediate  parties  to  an  instrument,  but  as  against  a  subsequent 
holder  in  due  course  it  is  of  no  avail. 

Barnes  holds  Evans's  note  for  $300.  Barnes  owes  Evans  on  open  account 
$100.  As  between  Barnes  and  Evans,  the  $100  is  a  good  counterclaim; 
but  should  Barnes  transfer  Evans's  note  to  a  holder  in  due  course,  that 
holder  could  maintain  an  action  to  collect  the  full  amount  of  the  note. 

Delivery.  —  A  negotiable  instrument  is  incomplete  and  revo- 
cable until  delivery,  for  the  purpose  of  giving  effect  to  the  instru- 
ment, is  made.  As  between  immediate  parties,  or  a  remote 
party  not  a  holder  in  due  course,  the  delivery  must  be  made  by 
or  under  the  authority  of  the  proper  party,  and  may  be  made 
conditionally,  or  for  a  special  purpose  and  not  to  transfer  title 
to  the  instrument. 


DEFENSES  177 

Sayre  sued  on  a  note  in  the  usual  form,  made  to  his  order  by  Leonard. 
The  defense  was  that  the  note  was  delivered  to  Sayre  on  condition  that 
it  was  to  be  void  if  Leonard's  partner,  Wingo,  ratified  a  certain  trans- 
action and  that  Wingo  had  ratified  it.  Held,  that,  as  between  immediate 
parties  to  the  instrument,  the  defense  of  conditional  delivery  was  avail- 
able. This  was  properly  proved  by  parol  evidence  and  Sayre  could  not 
recover.  —  Sayre  v.  Leonard,  57  Colo.  116. 

But  where  the  instrument  is  in  the  hands  of  a  holder  in 
due  course,  a  valid  delivery  by  all  parties  prior  to  him  so  as  to 
make  them  liable  to  him  is  conclusively  presumed.  This  pro- 
vision of  the  Negotiable  Instruments  Law  changes  the  prior  law 
in  some  states,  where  it  was  held  that  a  party  could  escape  liabiUty 
by  showing  that  he  had  not  delivered  the  instrument,  but  it  had 
been  stolen  or  delivered  without  his  authority. 

Tobin  arranged  to  buy  two  horses  from  one  Leonard  and  had  pre- 
pared a  check  to  Leonard's  order  for  the  price.  Leonard  delivered  the 
horses  in  Tobin's  absence  and  his  clerk  delivered  the  check  to  Leonard 
without  authority.  As  soon  as  Tobin  returned  he  discovered  the  horses 
were  unsound  and  stopped  payment  on  the  check,  but  meanwhile  Leonard 
had  negotiated  it  to  Buzzel,  a  holder  in  due  course.  It  was  held  that 
Buzzel  could  recover,  as  the  defense  of  nondelivery  was  not  available  against 
a  remote  holder  in  due  course. 

But  an  incomplete  instrument  not  delivered  will  not  be  a 
valid  instrument  in  the  hands  of  any  holder,  if  completed  and 
negotiated  without  authority. 

Bennet  accepted  a  bill  of  exchange  in  blank  and  left  it  in  his  desk.  It 
was  stolen  by  one  Cartwright  and  negotiated  to  Baxendalle,  a  holder  for 
value.     Held,  Baxendalle  could  not  recover. 

—  Baxendalle  v.  Bennett,  L.  R.  3  Q.  B.  Div.  (Eng.)  525. 

Absolute  or  Real  Defenses.  —  Absolute  or  real  defenses  are 
those  which  may  be  used  against  any  holder  of  negotiable 
paper. 

Illegality.  —  The  mere  fact  that  a  contract  is  illegal  is  not 
an  absolute  defense  to  a  negotiable  instrument  in  the  hands  of 
a  holder  in  due  course;  but  if  the  contract  is  expressly  made 
illegal  and  void  by  statute,  an  absolute  defense  is  created. 

If  the  maker  of  a  note  should  agree  in  the  instrument  to  pay  a  rate  of 
interest  in  excess  of  the  legal  rate  in  a  state  where  usury  is  forbidden  by 
statute,  an  absolute  defense  would  arise. 

Incapacity  of  Parties.  —  The  contract  represented  by  the 
instrument  may  not  be  binding,  for  the  reason  that  the  party  or 


178  NEGOTIABLE  INSTRUMENTS 

parties  did  not  have  the  capacity  to  contract;  as,  the  note  or 
bill  of  an  infant  or  lunatic.  Still,  if  a  valid  negotiable  instru- 
ment comes  into  the  hands  of  an  infant,  he  may,  if  of  full  mental 
capacity,  transfer  it  to  another. 

Fraud.  —  Fraud  as  illustrated  in  the  following  example  is 
an  absolute  defense. 

T.  H.  Brown  signed  an  instrument  in  the  following  form: 

The  instrument  was  torn  apart  at  the  vertical  dotted  line  and  the  left- 
hand  portion  was  discounted  for  J.  B.  Smith.  Brown  had  been  in  no  wise 
negligent  in  signing  this  instrument  and  he  could  not  be  held. 

—  Brown  v.  Reed^  79  Pa.  State  370. 

Alteration.  —  Another  failure  of  contract  arises  when  there 
has  been  a  material  alteration,  for  in  this  instance  the  minds 
of  the  parties  have  not  met  in  the  contract.  When  the  instru- 
ment has  been  materially  altered  and  is  in  the  hands  of  a  holder 
in  due  course,  not  a  party  to  the  alteration,  he  may  enforce 
payment  thereof  according  to  its  original  tenor. 

An  action  was  brought  against  Horn  and  Long,  the  makers  of  a  promis- 
sory note.  The  note  was  given  for  a  threshing  machine,  and  was  originally 
drawn  payable  to  "H.  C.  Pitt's  Sons'  Manufacturing  Company,"  and 
after  delivery  to  the  company  it  was  altered  by  substituting  the  name  of 
"O.  B.  Hildreth"  as  payee.  The  alteration  was  made  without  the  knowl- 
edge or  consent  of  Long,  and  he  never  ratified  the  change.  Horn  and  the 
payee  made  the  change.  Held,  that  this  was  a  material  alteration  and 
released  Long,  although  the  bank  was  a  holder  in  due  course. 

—  Horn  ^  Long  v.  Newton  City  Bank,  32  Kans.  518. 

An  action  was  brought  against  Wood  and  Higgins  as  makers  of  the 
following  promissory  note: 

$1000.  North  Hadley,  Mar.  31,  1868. 

For  value  received,  we  promise  to  pay  L.  L.  Draper,  or  order,  one 
thousand  dollars  on  demand,  with  interest  at  12  per  cent. 

Geo.  a.  Wood, 
H.  S.  Higgins. 
Higgins  defended  on  the  ground  that  the  note  he  signed  had  been 
changed  by  substituting  "we"  for  "I"  and  adding  the  words,  ''at  12  per 
cent."     It  was  shown  that  Wood  made  the  changes  in  good  faith,  but 


DEFENSES  179 

without  consulting  Higgins.     Held,   that  the  note  was  void  as  against 
Higgins. — Draper  v.  Wood,  112  Mass.  315. 

Any  alteration  of  a  negotiable  instrument  which  changes  its 
legal  effect  is  a  material  alteration. 

After  a  note  was  given  by  Moore,  with  Fuller  as  surety,  Sullivan  in- 
nocently procured  Rudisill  to  sign  as  surety.  The  court  held  the  note  void, 
but  allowed  a  recovery  upon  the  original  consideration.  When  a  promis- 
sory note  has  been  innocently  altered  without  any  fraudulent  purpose,  the 
payee  may  recover  in  an  action  on  the  original  consideration.  It  was  also 
held  that  the  signing  by  a  party  as  a  joint  maker,  after  the  execution  by 
the  original  maker  and  without  his  knowledge  and  consent,  is  a  material 
alteration.  — Sullivan  v.  Rudisill,  63  Iowa  158. 

There  must  be  an  intent  to  make  the  alteration,  and  it 
must  be  made,  of  course,  without  the  consent  of  the  maker  or 
acceptor  of  the  instrument.  The  alterat'on  must  also  be  made 
by  a  party  to  the  instrument  or  one  in  lawful  possession  of  it. 
The  holder  cannot  be  prejudiced  or  injured  by  the  act  of  a 
stranger  without  his  consent. 

A  person  not  a  party  to  the  instrument,  without  authority  wrote  across 
the  face  of  a  draft  the  words,  "Payable  in  United  States  gold  coin."  Held, 
that  the  alteration  was  not  such  as  to  vitiate  the  draft,  although,  if  the 
alteration  had  been  made  by  the  payee  or  by  his  instruction,  it  would  have 
invalidated  the  bill,  as  the  change  was  evidently  material. 

—  Lagenberger  v.  Kroeger,  48  Calif.  147. 

Forgery.  —  When  a  signature  to  a  negotiable  instrument  is 
forged,  it  is  unenforceable  in  the  hands  of  any  holder  who  must 
derive  title  through  the  forgery. 

The  fact  that  there  is  an  absolute  defense  to  an  instrument 
does  not  discharge  all  of  the  parties  to  it,  or  through  whose 
hands  it  has  passed.  As  we  have  seen,  such  defense  exonerates 
the  maker  or  acceptor  of  a  negotiable  instrument,  but  it  does 
not  relieve  the  liability  of  the  indorser,  because  every  person 
who  negotiates  such  an  instrument  warrants  that  it  is  genuine, 
that  he  has  a  good  title  to  it,  and  that  all  prior  parties  have 
capacity  to  contract. 

Tishomingo  Savings  Inst,  indorsed  a  bill  of  exchange  to  which  they 
claimed  title  through  a  forged  indorsement.  The  court  held  that  the  in- 
dorser warranted  the  genuineness  of  the  prior  indorsements  on  the  bill 
and  also  his  title  to  the  paper.  Should  it  be  ascertained  even  after  the 
payment  of  the  bill  that  any  of  the  indorsements  were  forged,  the  drawee 


i8o  NEGOTIABLE  INSTRUMENTS 

can  recover  the  amount  of  the  bill  from  the  party  to  whom  he  paid  it, 
and  each  preceding  indorser  may  recover  from  the  party  who  indorsed  the 
bill  to  him.  —  Williams  v.  Tishomingo  Savings  Inst.,  57  Miss.  633. 


QUESTIONS 

1.  What  is  a  defense  as  appHed  to  negotiable- paper? 

2.  What  are  the  two  principal  classes  of  defenses? 

3.  What  are  personal  defenses?    Name  then. 

4.  What  are  absolute  or  real  defenses?    Name  them. 

5.  How  does  fraud  affect  a  negotiable  instrument  contract? 

6.  Is  a  party  to  a  note  bound  when  his  signature  was  obtained  by 
fraud? 

7.  What  is  the  effect  of  duress  on  a  negotiable  instrument  contract? 

8.  Under  what  conditions  is  a  negotiable  instrument  contract  that 
lacks  consideration  good? 

9.  When  may  counterclaims  be  offered  as  a  defense? 

10.  How  does  no  delivery  affect  a  negotiable  instrument?    Explain. 

11.  Is  a  note  given  by  a  party  who  is  without  capacity  to  contract 
good?    Explain. 

12.  Is  a  note  given  for  an  illegal  object  good?    Explain. 

13.  How  does  alteration  or  forgery  affect  an  instrument?    Explain. 

14.  What  constitutes  a  material  alteration? 

15.  What  is  the  effect  of  a  forged  signature? 

16.  If  a  valid  instrument  comes  into  the  hands  of  an  infant,  has  he  a 
right  to  transfer  it  to  another? 

17.  Is  a  holder  in  due  course  affected  by  a  personal  defense? 

18.  Does  an  absolute  defense  discharge  all  parties?     Explain. 

19.  Will  one  who  takes  an  overdue  note  be  a  holder  in  due  course? 

20.  To  be  a  holder  in  due  course,  is  it  necessary  to  pay  face  value  for 
the  instrument? 

8.  DISCHARGE 

Payment.  —  Negotiable  instruments  are  discharged  by  pay- 
ment. A  payment  by  the  maker  or  acceptor  to  the  holder,  and 
the  surrender  of  the  instrument  to  him,  ends  the  transaction 
and  releases  all  the  parties  to  the  paper. 

Hayes-Eames  Elevator  Co.  issued  its  check  on  the  Bank  of  Bromfield 
and  it  was  paid  by  that  bank.  Later  the  bank  reissued  the  check  to  Au- 
rora State  Bank,  a  holder  in  due  course.  It  was  held  that  when  the  Bank 
of  Bromfield  paid  the  check  the  instrument  was  entirely  extinguished. 
The  bank  did  not  become  a  holder  within  the  meaning  of  the  Statute  and 
had  no  right  to  negotiate  the  instrument. 

—  Aurora  State  Bank  v.  Hayes-Eames  Elevator  Co.,  88  Nebr.  187. 


DISCHARGE  i8i 

The  agreement  of  the  maker  of  a  note  or  of  the  acceptor  of 
a  bill  of  exchange  is  that  upon  the  date  of  maturity  of  the  note 
or  bill  he  will  pay  absolutely  the  amount  named  therein  to  the 
payee  or  indorsee.  His  promise  is  absolute,  and  it  can  be  dis- 
charged only  in  some  one  of  the  ways  in  which  a  contract  can  be 
discharged,  as  by  payment,  material  alteration,  etc. 

The  only  condition  the  maker  can  require  is  that  the  holder 
surrender  the  note  or  bill,  and  the  maker  is  not  obliged  to  pay 
without  receiving  the  instrument,  as  otherwise  he  might  be 
compelled  to  pay  a  second  time,  should  the  instrument  come 
into  the  hands  of  a  holder  in  due  course. 

Best  made  a  promissory  note  to  Lamberson,  who  indorsed  it  before 
maturity  to  Crall.  Without  notice  of  this  transfer  and  before  maturity 
Best  paid  the  amount  of  the  note  to  Lamberson  and  got  his  receipt  for  the 
payment.  After  the  note  became  due  Crall  sued  as  indorsee.  Held,  that 
Crall  may  recover,  as  one  who  pays  to  the  payee  of  a  negotiable  note  the 
amount  thereof  before  maturity,  without  surrender  of  the  note,  does  so  at 
his  peril  and  may  be  required  to  pay  the  amount  again  to  a  holder  in  due 
course.  —  Best  v.  Crall,  23  Kans.  482. 

When  a  payee  has  lost  the  instrument  and  so  cannot  sur- 
render it,  relief  is  generally  given  him  by  compelling  the  maker 
to  pay,  upon  being  furnished  a  bond  to  indemnify  him  against 
any  loss  because  of  the  reappearance  of  the  note. 

When  the  maker  pays  a  note,  as  a  safeguard  he  should  de- 
tach his  signature  or  deface  the  note  in  such  a  way  that  it  could 
not  be  negotiated  again. 

Payment  by  Indorser.  —  Payment  by  one  of  the  indorsers 
after  the  instrument  has  been  dishonored  does  not  discharge  it, 
as  the  prior  indorsers  and  the  maker  or  acceptor  are  still  liable. 
The  payment  to  extinguish  the  instrument  must  be  made  by  or 
for  the  party  primarily  liable. 

Gleason  made  a  note  which  was  indorsed  by  Lill  for  his  accommoda- 
tion. Gleason  refused  to  pay  the  note  at  maturity  and  it  was  paid  by 
Lill,  who  sued  to  recover  the  amount  so  paid.  It  was  held  that  the  note 
was  not  extinguished  by  payment  and  the  indorser  by  his  paying  it  suc- 
ceeded to  the  rights  of  the  holder  against  the  maker  and  could  recover  on 
the  note.  —  Lill  v.  Gleason,  92  Kans.  754. 

The  instrument  may  also  be  discharged  by  the  intentional 
cancellation  thereof  by  the  holder  or  by  any  other  act  that 
would  discharge  a  simple  contract. 


r82  NEGOTIABLE  INSTRUMENTS 

A  husband  gave  his  wife  a  note.  Later  he  purchased  personal  property 
to  the  amount  of  the  note,  for  their  joint  use,  and  at  his  request  and  in- 
sistence she  mutilated  the  note.  It  was  held  that  the  mutilation  at  the 
husband's  request  was  with  the  purpose  of  discharging  the  note  and  there- 
fore the  note  was  invalid.  —  Kester  v.  Kester,  38  Oregon  10. 

Discharge  of  Indorser.  —  An  indorser  or  drawer  is  discharged 
by  any  act  that  discharges  the  instrument  or  that  discharges 
a  prior  party.  Thus,  the  third  indorser  on  a  promissory  note 
would  be  discharged  by  any  act  that  would  discharge  either  the 
maker  (which  would  cancel  the  instrument)  or  the  first  or  second 
indorser.  Any  agreement  on  the  part  of  the  holder  of  a  nego- 
tiable instrument  to  extend  the  time  of  payment,  unless  with 
the  assent  of  the  indorsers,  discharges  the  indorsers'  liability. 

QUESTIONS 

1.  What  is  the  usual  way  of  discharging  a  negotiable  contract? 

2.  What  danger  accompanies  payment  before  maturity? 

3.  How  should  the  payment  of  a  negotiable  instrument  be  safe- 
guarded? 

4.  Does  payment  by  one  indorser  discharge  prior  indorsers?  Ex- 
plain. 

5.  How  may  an  indorser  be  discharged? 

6.  What  is  the  advantage  of  being  a  holder  in  due  course? 

9.  INTEREST  AND   USURY 

Definition.  —  As  the  question  of  interest  is  one  that  very 
frequently  arises  in  connection  with  negotiable  instruments,  it  is 
well  to  consider  it  here.  A  common  definition  of  interest  is, 
"  The  compensation  paid  for  the  use  of  money."  The  amount 
upon  which  the  interest  is  reckoned  is  called  the  principal.  The 
interest  is  usually  a  certain  annual  per  cent  of  the  principal. 

In  most  of  the  states  the  rate  of  interest  is  prescribed  by 
statute  and  known  as  legal  interest,  and  when  no  rate  is  desig- 
nated by  the  parties  this  rate  will  prevail.  The  usual  legal  rate 
is  6  per  cent.    The  laws  of  one's  own  state  should  be  consulted. 

The  statutes  of  the  different  states  also  determine  whether 
or  not  a  higher  rate  may  be  agreed  upon  between  the  parties 
and,  in  most  cases,  say  how  high  a  rate  may  be  charged  by 
agreement. 


INTEREST  AND  USURY  183 

The  taking  of  a  higher  rate  than  that  allowed  by  the  statute 
of  a  particular  state  is  called  usury  and  is  punished  in  some  of 
the  states  by  the  forfeiture  of  all  of  the  interest;  in  others, 
by  the  forfeiture  of  both  principal  and  interest.  Where  such 
statutes  exist,  a  person  a^^reeing  to  accept  usurious  interest 
cannot  collect  either  the  money  due  or  the  interest. 

Claims  on  which  Interest  can  be  Collected.  —  Interest  can 
be  collected  on  all  claims  or  amounts  where  it  is  mutually  agreed 
by  the  parties  that  it  is  to  be  paid,  as  on  a  promissory  note 
which  contains  the  words  ''  with  interest  "  or  "  with  use,"  or 
some  words  to  the  same  effect.  It  can  also,  without  stipulation 
in  the  agreement,  be  collected  upon  debts  from  the  time  they 
become  due  until  they  are  paid;  in  other  words,  all  overdue 
debts  draw  interest.  An  illustration  is  the  case  of  a  promissory 
note  containing  no  provision  for  interest,  as  such  a  note  draws 
interest  from  the  date  it  becomes  due  until  it  is  paid,  but  does 
not  draw  interest  before  maturity. 

It  was  held  that  a  note  payable  five  years  after  date  "with  six  per 
cent  interest  from  date "  did  not  of  itself  fix  the  time  when  interest  should 
be  payable,  nor  did  a  statute  authorizing  the  calculation  of  interest  by  the 
year  determine  that  interest  should  be  paid  annually.  But  a  provision  in 
the  note  giving  the  maker  the  privilege  of  making  payments  on  account 
of  principal  "at  interest  date"  indicated  that  the  parties  intended  interest 
to  be  paid  annually. 

—  Illinois  Nat.  Bank  v.  Trustees  of  Schools,  iii  111.  Appeals  189. 

But  when  the  amount  of  the  debt  is  not  determined  and  is 
uncertain,  or  where  the  debt  consists  of  a  running  account  with 
payments  at  different  periods,  it  is  held  that  interest  does  not 
attach. 

Pengra  sued  to  recover  rent  under  a  lease  of  water  power.  The  lease 
provided  that  a  fixed  amount  of  renl  irhould  be  paid  quarterly,  with  a  de- 
duction if  the  water  supply  was  deficient.  During  the  period  for  which  rent 
was  due  the  water  supply  had  been  deficient  and  also  Wheeler  had  furnished 
supplies  and  made  repairs  against  his  rent  account.  Held,  that  was  a  case 
of  mutual  running  accounts  and  no  interest  could  be  allowed  either  party. 

—  Pengra  v.  Wheeler,  24  Oregon  532. 

Compound  Interest.  —  Interest  upon  interest  cannot  be  col- 
lected in  the  absence  of  a  special  agreement,  and  some  juris- 
dictions do  not  allow  it  then. 


i84  NEGOTIABLE  INSTRUMENTS 

QUESTIONS 

1.  Define  (a)  interest,  (b)  legal  rate,  (c)  usury. 

2.  What  is  the  legal  rate  in  your  state? 

3.  On  what  claims  can  interest  be  collected? 

4.  Under  what  conditions  can  compound  interest  be  collected? 

10.   CREDITS 

Forms  of  Credit.  —  Every  negotiable  instrument  we  have 
studied  is  a  form  of  commercial  credit.  Credit,  as  used  in  busi- 
ness, means  postponed  cash  payments.  The  open  account  is  a 
form  of  credit  where  there  is  no  negotiable  credit  instrument  as 
evidence  of  its  existence.  The  open  account  is  often  converted 
into  other  forms  of  credit  by  means  of  negotiable  instruments, 
such  as  the  bill  of  exchange  or  draft,  the  promissory  note,  and 
other  negotiable  instruments. 

Extent  of  Credit.  —  It  is  hard  to  estimate  what  part  of  the 
world's  business  is  done  on  credit  or  on  postponed  cash  pay- 
ments, but  it  is  safe  to  say  by  far  the  greater  part.  The  capital 
invested  in  our  great  enterprises  is  represented  by  stock  certi- 
ficates, bonds,  mortgages,  term  notes,  and  other  kinds  of  credit 
instruments.  It  is  this  fact  that  makes  the  negotiable  instrument 
so  important. 

Classes  of  Credit.  —  The  classes  of  credit  which  concern  us 
in  this  connection  are:  personal  credit,  business  credit,  banking 
credit,  and  investment  credit. 

Personal  credit  is  the  credit  a  merchant,  a  banker,  or  any 
one  extends  to  an  individual.  This  is  done  through  loans  and 
open  accounts. 

Business  credit  is  the  credit  established  through  the  various 
business  transactions.  In  this  connection  the  account  purchase 
and  the  short-term  bank  loan  are  the  most  common. 

Banking  credit  is  the  credit  business  firms  and  others  ob- 
tain from  a  bank  by  means  of  short-term  loans.  Banks  are  the 
financial  agents  of  the  country.  They  accept  money  from 
depositors  and  under  the  banking  laws  they  are  permitted  to 
loan  under  approved  conditions  a  large  portion  of  the  deposited 
funds;  in  this  way  credit  is  extended  in  a  general  way  to  such 
business  enterprises  as,  in  the  judgment  of  the  banks,  merit  it. 


CREDITS  i8s 

Investment  credit  is  the  credit  extended  to  a  business  through 
the  purchase  of  its  credit  instruments,  such  as  mortgages,  corpo- 
rate bonds,  and  long-term  notes,  which  are  issued  against  the 
fixed  assets  of  the  business.  The  ultimate  source  of  this  credit 
is,  for  the  most  part,  individual  investors. 

All  the  different  credit  instruments  are  subject  to  the  laws 
governing  negotiable  instruments. 

Discount  Loans.  —  Many  individuals  and  firms  need  at 
different  times  additional  ready  funds  to  finance  certain  busi- 
ness transactions.  These  funds  are  usually  secured  by  dis- 
counting a  short-term  note  at  the  bank  where  their  deposit 
account  is  kept. 

The  Federal  Reserve  Act.  —  The  Federal  Reserve  Act, 
which  operates  generally  throughout  the  country,  has  greatly 
facilitated  the  securing  of  bank  loans  and  has  increased  the 
ability  of  merchants  to  borrow  funds  or  extend  their  credit. 

Section  13  of  this  act,  which  relates  directly  to  bank  loans, 
reads  as  follows: 

"  Upon  the  indorsement  of  any  of  its  member  banks,  which 
shall  be  deemed  a  waiver  of  demand,  notice,  and  protest  by 
such  bank  as  to  its  own  indorsement  exclusively,  any  Federal 
Reserve  Bank  may  discount  notes,  drafts,  and  bills  of  exchange 
arising  out  of  actual  commercial  transactions;  that  is,  notes, 
drafts,  and  bills  of  exchange  issued  or  drawn  for  agricultural, 
industrial,  or  commercial  purposes,  or  the  proceeds  of  which 
have  been  used,  or  are  to  be  used,  for  such  purposes  —  the 
Federal  Reserve  Board  to  have  the  right  to  determine  or  define 
the  character  of  the  paper  thus  eligible  for  discount,  within  the 
meaning  of  this  act.  Nothing  in  this  act  contained  shall  be 
construed  to  prohibit  such  notes,  drafts  and  bills  of  exchange, 
secured  by  staple  agricultural  products,  or  other  goods,  wares, 
or  merchandise  from  being  eligible  for  such  discount;  but  such 
definition  shall  not  include  notes,  drafts,  or  bills  covering  merely 
investments  or  issued  or  drawn  for  the  purpose  of  carrying  or 
trading  in  stocks,  bonds,  or  other  investment  securities,  except 
bonds  and  notes  of  the  Government  of  the  United  States.  Notes, 
drafts,  and  bills  admitted  to  discount  under  the  terms  of  this 
paragraph  must  have  a  maturity  at  the  time  of  discount  of  not 


i86  NEGOTIABLE  INSTRUMENTS 

more  than  ninety  days,  exclusive  of  days  of  grace;  provided, 
that  notes,  drafts,  and  bills  drawn  or  issued  for  agricultural 
purposes  or  based  on  live  stock  and  haying  a  maturity  not 
exceeding  six  months,  exclusive  of  days  of  grace,  may  be  dis- 
counted in  an  amount  to  be  limited  to  a  percentage  of  the  assets 
of  the  Federal  Reserve  Bank  to  be  ascertained  and  fixed  by 
the  Federal  Reserve  Board." 

The  Federal  Reserve  Board.  —  The  Federal  Reserve  Board 
consists  of  seven  members,  including  the  Secretary  of  the  Treas- 
ury and  the  Comptroller  of  the  Currency  and  five  members 
appointed  by  the  President.  The  Board  exercises  general 
supervision  over  reserve  banks  and  regulates  the  activities  of 
member  banks. 

The  Federal  Reserve  Board  is  empowered  to  issue  -Federal 
Reserve  Bank  Notes  to  Federal  Reserve  Banks  upon  receiving 
on  deposit  commercial  paper  from  such  banks.  These  Federal 
Reserve  Notes  are  legal  tender,  and  are  redeemable  in  gold  or 
lawful  money  at  any  Federal  Reserve  Bank,  or  at  the  United 
States  Treasury.  This  makes  it  possible  for  the  Federal  Reserve 
Bank  to  furnish  relief  in  a  stringent  money  market  or  when  a 
panic  is  threatened. 

QUESTIONS 

1.  What  are  the  principal  forms  of  credit? 

2.  What  are  the  different  classes  of  credit? 

3.  What  is  personal  credit  and  how  is  it  extended  to  individuals? 

4.  How  is  business  credit  established?     " 

5.  What  is  banking  credit  and  how  is  it  obtained? 

6.  What  is  investment  credit  and  what  is  its  principal  source? 

7.  How  are  discount  loans  secured? 

8.  What  are  the  main  provisions  of  the  Federal  Reserve  Act  with 
reference  to  loans  and  discounts? 

9.  Who  compose  the  Federal  Reserve  Board? 

10.  What  are  the  functions  of  this  board? 

11.  How  can  the  Federal  Reserve  Bank  give  relief  in  case  of  a  stringent 
money  market? 

IMPORTANT   POINTS 

Negotiable  instruments  are  credit  instruments  which  pass  freely 
from  one  party  to  another  by  indorsement  and  delivery  or  by  delivery. 


IMPORTANT  POINTS  1^7 

A  distinguishing  quality  of  negotiable  paper  lies  in  the  fact  that 
any  person,  not  an  original  party,  who  is  a  holder  in  due  course  may 
coUect  it  without  regard  to  personal  defenses  that  may  be  good  as 
between  the  original  parties. 

A  forged  signature  makes  the  instrument  absolutely  void  in  the 
hands  of  one  claiming  through  the  forgery. 

A  check  is  considered  a  conditional  payment  only. 

Presentment  of  a  negotiable  promise  to  pay  is  an  exception  to 
the  rule  that  *'  the  debtor  must  seek  the  creditor." 

A  negotiable  instrument  is  a  contract  which,  as  between  the 
immediate  parties,  requires  consideration  the  same  as  any  other 
contract. 

Where  the  sum  payable  is  expressed  in  figures  and  also  in  words, 
and  there  is  a  discrepancy  between  the  two,  the  sum  expressed  in 
words  prevails. 

The  written  provisions  of  an  instilment  prevail,  where  there  is 
a  conflict  between  what  is  written  and  what  is  printed. 

When  it  is  not  clear  in  what  capacity  a  person  has  signed  an 
instrument,  he  is  considered  an  indorser. 

A  check  made  payable  to  a  fictitious  payee  is  payable  to  bearer. 

As  to  the  liability  of  the  maker  or  makers,  notes  are  either  several, 
joint,  or  joint  and  several. 

When  the  makers  of  a  joint  note  indorse  the  note  they  become 
severally  Hable. 

A  holder  in  due  course  is  one  who  acquires  the  instrument  under 
the  following  conditions: 

1.  That  it  is  complete  and  regular  upon  its  face. 

2.  That  he  acquired  it  before  it  was  due. 

3.  That  he  acquired  it  in  good  faith  and  for  value. 

4.  That  he  was  ignorant  of  any  defects  in  the  instrument  or  in 
the  title  of  the  transferor. 

An  infant  who  comes  into  possession  of  a  negotiable  instrument 
rightfully  may  transfer  it  by  indorsement. 

A  bill  of  exchange  drawn  in  one  state  and  payable  in  another 
state  is  considered  a  foreign  bill  of  exchange. 

A  foreign  bill  of  exchange  that  has  been  dishonored  must  be 
protested. 

Any  notary  public  has  authority  to  protest,  or  any  resident  of  the 
place  where  the  instrument  is  dishonored,  in  the  presence  of  two  or 
more  witnesses. 

The  protest  must  be  annexed  to  the  instrument  and  must  specify : 

1.  The  time  and  place  of  presentment. 

2.  The  fact  and  manner  of  presentment. 

3.  The  reason  for  protesting  the  instrument. 

4.  The  demand  made  and  tiie  answer  given,  if  any,  or  the  fact 
that  the  right  party  could  not  be  found. 


i88  NEGOTIABLE  INSTRUMENTS 

One  who  cannot  write  may  have  an  instrument  signed  as  follows : 
J.  C.  Walker. 
X    his  mark. 

Some  one  writes  "Walker's  name,  he  makes  his  mark,  after  which 
the  party  who  wrote  his  name  writes  **  his  mark." 

The  consideration  paid  for  a  negotiable  instrument  need  not 
equal  its  face  value. 

Payable  absolutely  means  that  there  must  be  no  condition  named 
in  the  instrument  to  prevent  an  absolute  Uability. 

Any  future  time  that  is  sure  to  arrive  satisfies  the  law. 

In  the  case  of  ambiguous  statements  or  signatures  the  law  per- 
mits oral  evidence  to  explain  the  intentions  of  the  parties. 

All  time  drafts,  whether  due  after  sight  or  after  date,  should  be 
presented  for  acceptance. 

The  drawee  who  accepts  a  draft  on  which  the  drawer's  signature 
was  forged  is  Uable. 

A  bank  that  pays  a  forged  check  is  liable. 

When  an  instrument  has  been  dishonored  and  payment  refused, 
notice,  unless  waived  by  indorsement  or  otherwise,  must  be  sent  to 
drawer  and  all  indorsers. 

An  instrument  must  be  presented  promptly  at  maturity. 

Personal  defenses  may  be  used  against  original  parties ;  absolute 
defenses  may  be  used  against  all  parties. 

Until  deUvered  a  negotiable  instrument  is  incomplete  and  revo- 
cable as  between  original  parties. 


TEST    QUESTIONS 

1.  Is  the  following  a  negotiable  instrument? 

Philadelphia,  Pa.,  August  3,  1920. 
Due  Joseph  Mitchell  $100,  value  received.  George  Snyder. 

2.  An  instrument  is  written  in  lead  pencil  in  the  following  form: 

Buffalo,  New  York. 
I,   James   Andrews,   promise   to   pay   to  Thomas   McGrath   or  order 

One  Hundred  Fifty Dollars 

Value  received. 

Mention  three  particulars  in  which  this  paper  is  not  in  the  usual  form. 

3.  Is  the  following  a  negotiable  instrument?    Has  it  any  legal  effect? 

Cleveland,  Ohio,  September  i,  1920. 
Five  months  after  date  I  promise  to  pay  George  Williams  the  sum  of 

Twenty-five Dollars 

Value  received.  E.  D.  Parsons. 

4.  Is  an  instrument  payable  to  one  of  three  different  persons  named 
negotiable? 


TEST  QUESTIONS  189 

5.  Is  there  any  reason  why  the  following  is  not  a  negotiable  instru- 
ment? 

Three  months  after  date  for  value  received  I  promise  to  pay  Charles 
Barton,  or  order,  One  Hundred  Dollars  or  Ninety-five  Dollars  if  payable 
60  days  after  date.  Elmer  Clark. 

6.  State  whether  or  not  the  following  is  a  negotiable  instrument. 
For  value  received,  I  promise  to  pay  Thomas  Rice  or  order  $100  when  he 
shall  be  graduated  from  college.  Charles  Ellis. 

7.  What  kind  of  promissory  note  is  the  following? 

One  month  after  date  for  value  received  I  promise  to  pay  E.  F. 
Sherwood  $100.  Edward  F.  Grant, 

James  Grant. 

8.  A  note  is  signed,  "James  Willis  by  John  Rogers,  Agent."  Which 
of  the  two  parties  is  liable? 

9.  A  note  is  signed,  "  Frank  Getman,  Agent  of  William  Carr."  Which 
is  liable  on  the  note,  Getman  or  Carr? 

10.  A  note  is  signed  "Erie  Gas  Company,  Edward  Booth,  President." 
What  is  the  effect  of  this  signature? 

11.  The  indorsement  on  a  $500  note  was  as  follows:  "Pay  George 
Harris  or  order  $300  of  the  within  note.  H.  E.  Young."  Is  this  a  good 
indorsement? 

12.  Why  is  a  note  protested? 

13.  When  is  protest  of  a  negotiable  instrument  required  by  law? 

14.  Explain  fully  the  legal  effect  of  an  indorsement  waiving  a  protest. 

15.  What  is  the  distinction  between  a  personal  defense  and  an  abso- 
lute defense? 

16.  Is  the  following  instrument  negotiable?  "On  September  i,  1920, 
I  promise  to  deliver  to  H.  C.  Dewitt  or  his  order  150  bu.  of  A-i  grade  shell 
corn  for  value  received.  H.  W.  Edwards." 

17.  If  the  indorsee  of  a  note  knew  that  the  indorser  had  no  interest 
in  the  note  and  had  only  signed  for  accommodation,  would  that  release 
the  indorser  from  liability? 

18.  If  you  receive  a  negotiable  instrument  indorsed  in  blank,  how  can 
you  protect  yourself  from  the  danger  involved  in  the  loss  of  the  instrument? 

19.  Benson  accepts  a  check  on  which  there  is  an  erasure  and  something 
has  been  rewritten.    Is  he  a  holder  in  due  course? 

20.  Explain  the  following  as  applied  to  a  promissory  note:  (a)  nego- 
tiable in  form,  (b)  payable  in  money  to  a  designated  payee  at  a  time  that 
is  certain,  (c)  unconditional  promise  to  pay,  (J)  holder  in  due  course. 


iQO  NEGOTIABLE  INSTRUMENTS 

21.  Omaha,  Nebraska,  June  i,  1920. 
Sixty  days  after  date  I  promise  to  pay  to  the  order  of  Edmond  Shaw 

One  Hundred  and  -^ Dollars 

100 

at  the  First  National  Bank. 
Value  received 

$100^.  W.  D.  Watson. 

Explain  the  nature  of  each  of  the  following  indorsements  on  the  above 
note: 

(a)  Edmond  Shaw  (c)  Pay   A.   L.   Evans   only 

Edmond  Shaw 

(b)  Pay  to  the  order  of  (d)  Pay    Merchants    National    Bank 

A.  L.  Evans  for  deposit 

Edmond  Shaw  Edmond  Shaw 

22.  Answer  the  following  questions  as  applied  to  notes.  What  will 
make  an  ordinary  note  a  judgment  note?  How  is  the  maturity  of  a  note 
determined?  How  long  will  a  note  run  on  which  no  payments  are  made 
before  action  to  collect  is  legally  barred? 

23.  What  is  the  indorser's  contract?     Explain  fully. 

24.  (a)  Name  three  forms  of  promissory  notes  and  explain  the  effect 
of  each,     (b)   Name  three  forms  of  liability  on  notes. 

25.  What  is  the  obligation  of  the  drawee  of  a  draft  before  and  after  the 
acceptance? 

CASE   PROBLEMS 
Give  the  decision  and  the  principle  of  law  involved  in  each  case. 

1.  A  promissory  note,  given  to  A.  W.  Read  by  O.  E.  Jansen,  was 
not  signed,  but  on  the  same  sheet  of  paper  following  the  note  were  listed  the 
securities  which  Jansen  gave  Read  to  secure  payment  of  the  note.  Jansen's 
signature  followed  the  list  of  securities.    Is  this  a  good  note?    Explain. 

2.  Rowe  purchased  a  negotiable  note  before  maturity.  The  note  on 
its  face  was  for  $500.  The  purchaser  was  acquainted  with  the  maker  and 
knew  that  he  was  solvent.  He  paid  $25  for  the  note.  Was  he  a  holder  in 
duS  course? 

3.  If  the  purchaser  had  taken  the  above  note  after  maturity  and 
paid  the  face  value,  $500,  for  it,  would  he  have  been  a  holder  in  due  course? 

4.  Hempy  becomes  the  holder  in  due  course  of  a  note  upon  which 
the  maker's  name  was  forged.     Can  he  collect  of  the  indorser? 

5.  Rich  made  and  delivered  a  promissory  note  payable  three  months 
after  date  to  the  order  of  Gaynon.  Gaynon  after  receiving  the  note  changed 
the  time  of  payment  to  four  months  without  the  knowledge  or  consent  of 
Rich.    Did  this  affect  Rich's  liability  on  the  instrument? 


CASE  PROBLEMS  191 

6.  Downs  becomes  a  holder  in  due  course  of  a  promissory  note  which 
was  given  by  Rice*  to  Bates  without  consideration.  Downs  sues  Rice  on 
the  note  and  Rice  sets  up  the  defense  of  no  consideration.  Can  Downs 
recover? 

7.  Dyer  executed  a  promissory  note  to  Merrit  for  $100  payable  three 
months  after  date.  One  month  after  date  he  paid  the  note.  The  note 
instead  of  being  destroyed  was  lost  and  came  into  the  hands  of  Mellon,  a 
holder  in  due  course.    Can  Mellon  recover  on  the  note? 

8.  Brown  makes  a  note  for  three  months,  but  says  nothing  in  refer- 
ence to  interest.  He  pays  the  note  nine  months  after  having  made  it. 
Can  interest  be  collected  upon  it,  and,  if  so,  for  how  long? 

9.  On  the  day  of  maturity,  Foust,  a  holder  in  due  course,  presented  a 
note  to  Simpson,  the  maker.  Simpson  refused  to  pay,  stating  that  he  had 
received  no  consideration  for  the  note.  What  are  the  rights  of  the  parties? 
Explain. 

10.  Fitch  and  Mowery  gave  a  note  to  Swan  on  which  J.  E.  Green's 
name  as  indorser  had  been  forged.  Swan  transfers  the  note  to  Hickey  by 
indorsement.  Fitch  and  Mowery  become  insolvent.  How  are  the  parties 
to  this  note  affected?     Explain. 

11.  Jacobs  indorsed  for  the  accommodation  of  Hardman  a  note  for 
$1000  payable  60  days  after  date.  Hardman  changed  the  time  to  90  days 
and  discounted  the  note  at  his  bank.  When  the  note  came  due  Hardman 
failed  to  pay  and  the  bank  protested  the  note  and  sent  notice  of  nonpay- 
ment to  Jacobs.    What  are  the  rights  of  the  parties?    Explain. 

12.  Willson,  the  payee  of  a  negotiable  instrument,  indorses  it  to  Baker 
by  full  indorsement.  When  the  note  came  due  the  maker,  J.  C.  Williams, 
refused  payment,  claiming  that  the  note  had  been  given  as  a  result  of  duress. 
Is  this  a  good  defense  against  Baker?    Explain. 

13.  Balford  wrote  his  name  on  a  blank  note  and  left  it  where  it  was 
picked  up  by  Hearn,  who  filled  it  in  for  $1000  and  transferred  it  to  Max- 
well, an  innocent  purchaser  for  value.  Maxwell  indorsed  the  note  and  dis- 
counted it  at  his  bank.    Can  Balford  be  held?    Explain. 

14.  Suppose  Maxwell  in  problem  13  had  known  the  fact,  but  agreed 
with  Hearn  to  take  the  note  for  the  purpose  of  collecting  from  Balford; 
could  Maxwell  have  collected  it? 

15.  Could  a  bank  have  collected  the  note  in  problem  14  if  Maxwell, 
knowing  the  fact,  had  indorsed  it  to  them  and  they  became  holders  in  due 
course? 

16.  Norton  gave  Roder  his  three  months'  note  for  $500.  Roder  in- 
dorsed the  note  to  Walker  to  apply  on  account.    The  note  was  not  pre- 


192  NEGOTIABLE  INSTRUMENTS 

sented  for  payment  at  maturity,  but  was  presented  two  weeks  later.    Is 
the  indorser  liable?    Explain.  • 

17.  At  2  o'clock  on  the  afternoon  of  January  5,  Milton  accepted  a 
check  from  Conley  for  $5000  on  the  Merchants  National  Bank.  The 
same  afternoon  Milton  went  to  the  Merchants  National  Bank  to  cash  the 
check,  but  he  decided  that  he  did  not  wish  to  carry  that  amount  of  money 
around,  so  he  had  the  check  certified.  He  was  called  out  of  town  that 
evening  and  when  he  returned  the  bank  had  failed.  What  course  is  open 
to  Milton?    Explain. 

18.  Lamb  is  the  holder  of  a  negotiable  note  on  which  appear  the  fol- 
lowing indorsements: 

Homer  Cranford 
Pay  to  Charles  White  or  order 

F.  D.  Coon 
Pay  to  Sam  Harvey  or  order 
without  recourse  to  me 
Charles    White 
Sam  Harvey 

The  note  is  due;  Lamb  presents  it  to  the  maker  and  demands  payment, 
which  is  refused.  What  should  be  his  procedure?  Explain  fully  the  rights 
and  the  liabilities  of  each  of  these  indorsers. 

19.  Odell  indorsed  a  note  for  the  accommodation  of  Engle.  Engle 
discounted  the  note  at  his  bank  and  at  maturity  he  failed  to  pay  it.  The 
bank  tried  to  collect  from  Odell,  who  set  up  the  defense  of  no  consideration. 
Is  he  Hable?    Explain. 

20.  Clary  had  his  check  certified  by  his  bank  and  sent  it  to  Mendel 
and  Company  to  apply  on  account.  Mendel  and  Company  held  the  check 
for  twenty-eight  days  before  depositing  it.  The  bank  certifying  the  check 
failed  and  closed  its  doors  twenty-nine  days  after  the  check  was  certified 
and  before  it  was  returned.    Who  must  bear  the  loss? 

21.  Taylor  made  out  a  note,  complete  in  every  particular,  payable 
to  Bryan  and  locked  it  up  in  his  safe.  That  night  he  was  taken  ill  and 
died  suddenly.  Bryan  knew  the  note  had  been  prepared  for  him  and 
brought  action  to  recover  it.  {a)  Is  it  a  good  note?  (6)  Has  Bryan  any 
rights?    Explain. 

22.  A  note  is  worded  "We  jointly  promise  to  pay"  and  signed  by 
Harvey  Long  and  Edmund  Drew.  It  was  not  paid  when  due,  and  as  Long 
was  to  be  away  for  a  period  of  time,  J.  C.  Humphrey,  the  holder,  took 
action  against  Drew.     Can  he  succeed?    Explain. 


CASE  PROBLEMS  193 

23.  In  problem  22  had  Long  and  Drew  both  indorsed  this  note, 
would  the  result  of  the  action  have  been  different? 

24.  J.  W.  Vance  gave  0.  E.  McClure  a  note  for  $500  and  in  connec- 
tion with  the  promise  to  pay  he  stipulated  that  he  would  pay  the  $500 
when  due  or  assign  to  the  payee  a  half  interest  in  a  threshing  machine  which 
he  owned.  When  the  note  came  due  he  refused  to  do  either  and  set  up  as 
a  defense  the  nonnegotiability  of  the  instrument.  Has  the  payee  a  valid 
claim  against  Vance?    Explain. 

25.  Jarvis  made  a  note  dated  at  Detroit,  Michigan,  and  payable  in 
Canadian  money.  The  note  was  indorsed,  in  the  usual  course  of  business, 
by  the  payee  to  M.  O.  Dodd.  Jarvis  failed  to  pay  and  M.  O.  Dodd,  after 
due  notice,  brought  suit  against  the  indorser.     Can  he  collect?    Explain. 

26.  Hatch  holds  a  note  for  $500  against  Dart.  Hatch  is  indebted  to 
Dart  for  $500.  Hatch  transfers  the  note  to  Lyman  in  the  usual  course  of 
business  for  value.  When  the  note  falls  due,  Lyman  presents  it  to  Dart, 
who  refuses  payment  on  the  ground  that  Hatch  is  owing  to  him  an  amount 
equal  to  the  face  of  the  note.  Lyman  protests  the  note  and  serves  notice 
on  the  maker  and  indorser.    Has  the  maker  a  good  defense?    Explain. 

27.  Holcomb  transferred  a  note  to  Merritt  by  indorsing  it  without 
recourse.  The  note  was  signed  by  J.  C.  Crumb,  a  well-known  builder,  but 
the  signature  had  been  forged,  a  fact  known  to  Holcomb  when  he  trans- 
ferred the  note.  When  the  note  came  due  Merritt  presented  it  to  Crumb, 
who  discovered  that  the  signature  was  a  forgery.  Merritt  took  action 
against  Holcomb.     Can  he  recover?    Explain. 

28.  Johnson  indorsed  a  note  to  Stewart  as  follows:  "Pay  A.  H.  Stewart 
only.  L.  W.  Johnson."  Stewart  indorsed  it  in  full  to  O.  T.  Thayer.  The 
maker  of  the  note  failed  to  pay  and  Thayer  brought  action  against  the  in- 
dorsers.    Is  either  of  the  indorsers  liable?    Explain. 

29.  Hardy  signs  and  delivers  a  blank  note  to  Spaulding  and  directs 
him  to  fill  it  in  for  an  amount  sufficient  to  settle  a  claim  held  by  Lansing, 
to  whom  Spaulding  was  to  deliver  the  note.  Spaulding  filled  in  the  note 
for  $500  and  negotiated  it  to  Black,  who  demanded  payment  at  maturity. 
Hardy  refused  to  pay  the  note  and  set  up  as  a  defense,  fraud  and  lack  of 
consideration.    Is  he  liable?    Explain. 

30.  Lowry  thought  that  he  was  signing  a  subscription  blank  for  a  set  of 
encyclopedias,  when  in  reality  he  signed  a  cleverly  contrived  promissory 
note.  This  note  was  negotiated  and  it  got  into  the  hands  of  an  innocent 
pajty,  who  took  action  to  recover.     Can  he  succeed? 


GUARANTY 

Definition.  —  A  guaranty  is  a  contract  resulting  from  a 
promise  by  one  party  to  answer  for  the  debts,  defaults,  or  legal 
obligations  of  another  party.  It  is  collateral  to  the  main  con- 
tract. 

Jerome  wiU  not  give  Hines  credit  unless  North  will  guarantee  payment 
of  the  account.  North  agrees  to  pay  if  Hines  fails  to  do  so.  On  the  strength 
of  this  guaranty  in  writing  which  North  gave  Jerome,  Hines  secured  the 
credit  he  desired.    In  case  Hines  fails  to  pay,  North  is  liable. 

Parties.  —  There  are  three  parties  to  a  guaranty.  The 
guarantor,  the  one  who  gives  the  guaranty;  the  creditor,  the 
one  to  whom  the  guaranty  is  given;  and  the  principal,  the  one 
whose  performance  or  obligation  is  guaranteed. 

The  Contract.  —  The  contract  must  be  in  writing  as  re- 
quired under  the  Statute  of  Frauds,  and  signed  by  the  guarantor. 
As  distinguished  from  an  original  undertaking,  whereby  one 
assumes  responsibility  and  is  liable  for  the  performance  of  his 
part  of  the  contract,  it  is  an  agreement  to  assume  liability  in 
case  the  principal,  the  one  whose  performance  or  obligation  is 
being  guaranteed,  fails  to  meet  his  obligation.  That  is,  it  is  a 
promise  contingent  upon  a  failure  or  default. 

Shelton  contracted  to  erect  an  office  building  for  Moon.  One  pro- 
vision of  the  contract  was  that  Shelton  should  secure  two  guarantors,  satis- 
factory to  Moon,  who  would  guarantee  to  reimburse  Moon  for  any  loss  he 
may  suffer  as  a  result  of  Shelton 's  failure  in  any  particular  to  fulfill  his 
contract. 

The  legal  requirements  of  this  guaranty  are: 

1.  That  it  must  be  in  writing  and  signed  by  the  guarantors. 

2.  That  it  must  be  given  concurrently  with  the  original  con- 
tract as  an  inducement  for  Moon  to  enter  into  a  contract  with 
Shelton  or  if  made  at  another  time,  some  consideration  must  be 
given  for  the  guaranty. 

The  contract  of  indemnity  which  is  a  simple  contract  must 
not  be  confused  with  the  contract  of  guaranty.  If  the  contract 
is  one  of  indemnity  only,  that  is  to  indemnify  a  person  for  any 

194 


CONSIDERATION  195 

loss  he  may  suffer  by  reason  of  doing  something  at  the  request  of 
the  guarantor,  the  contract  need  not  be  in  writing.  In  such 
cases  there  are  but  two  parties. 

Saunders  engaged  Lee,  a  truckman,  to  transfer  some  goods  from  a 
warehouse  to  Saunders's  store.  The  streets  were  sHppery  and  Lee  refused 
to  take  his  truck  out.  Finally  Saunders  told  Lee  that  he  would  make  good 
any  loss  resulting  from  accident  caused  by  the  slippery  streets.  Lee  was 
induced  by  this  promise  to  attempt  to  move  the  goods,  and  his  truck  slid 
against  the  curb  and  damaged  a  wheel.  Saunders  will  have  to  reimburse 
Lee,  as  this  is  an  indemnity  contract  between  two  parties  and  does  not  need 
to  be  in  writing. 

If  the  promise  is  an  original  instead  of  a  collateral  one  it 
does  not  have  to  be  in  writing. 

North  says  to  Jerome,  "Let  Hines  have  such  articles  as  he  desires  and 
I  will  see  that  you  get  your  pay."  In  this  instance  North  becomes  the  original 
debtor  and  the  contract  does  not  need  to  be  in  writing. 

Consideration.  —  Contracts  of  guaranty  like  all  other  con- 
tracts must  be  supported  by  consideration.  When  the  contract 
of  guaranty  is  made  at  the  same  time  as  the  contract  guaranteed, 
the  consideration  for  the  original  promise  will  also  be  the  con- 
sideration for  the  collateral  promise. 

When  the  contract  of  guaranty  is  made  subsequent  to  the 
contract  which  it  guarantees,  a  new  consideration  is  required. 

Morrison  leased  a  store  to  Economy  Furniture  Co.  Several  weeks  after 
the  execution  and  delivery  of  the  lease  BuUen  signed  a  written  guaranty 
of  the  lease.  When  sued  on  the  guaranty  Bullen  defended  on  the  ground  of 
no  consideration.  The  Court  held  that  the  guaranty,  made  after  the  principal 
contract,  was  a  separate  and  distinct  contract  and  was  not  binding  without 
a  new  and  independent  consideration. 

— Bullen  V.  Morrison,  98  111.  Appeals  669. 

Guaranty  of  Collection  and  Guaranty  of  Payment.  —  There 
is  a  difference  between  a  guaranty  of  collection  and  a  guaranty 
of  payment.  In  a  guaranty  of  payment  the  guarantor  agrees 
to  pay  if  the  principal  does  not,  while  in  a  guaranty  of  collection 
he  agrees  to  pay  if  the  debt  cannot  be  collected  from  the  principal. 

Wymann  indorsed  a  note  for  Hunt  as  follows:  "I  hereby  guarantee 
payment  of  the  within  note"  and  signed  his  name.  In  this  case  if  Hunt 
fails  to  pay  the  note  when  it  is  due,  Wymann  will  have  it  to  pay. 

Had  Wymann  indorsed  the  note  as  follows:  "I  hereby 
guarantee  the  collection  of  the  within  note  "  and  signed  his 


196  GUARANTY 

name,  the  payee  of  the  note  would  have  to  show  that  he  could 
not  by  any  means  collect  of  Hunt  before  he  could  hold  Wymann. 

Kinds  of  Guaranty.  —  There  are  many  different  kinds  of 
guaranty  known  in  business.  The  most  common  are:  guaranty 
of  quality  of  goods,  guaranty  of  credit,  guaranty  of  honesty  or 
fidelity,  and  guaranty  of  title  to  real  property. 

There  are  many  business  concerns  engaged  in  making  guaran- 
ties and  selling  guaranty  insurance.  The  title  guaranty  com- 
panies and  the  fidelity  insurance  companies  are  the  most  common. 

The  purchaser  of  a  building  lot,  who  wishes  to  make  sure  that  the  title 
to  the  lot  is  free  from  defect,  makes  application  to  a  title  company  to  have 
the  title  searched  and  insured.  The  title  company  have  their  experts  make 
a  search  and  if  they  find  no  defects  they  issue  to  the  purchaser  of  the  lot  a 
title  insurance  policy  whereby  they  guarantee  to  indemnify  him  for  any 
loss  which  he  may  suffer  by  reason  of  defects  in  the  title  to  the  lot  which  he 
purchased. 

Fidelity  insurance  companies  guarantee  the  honesty  and 
fidelity  of  employees  and  others  who  are  trusted  with  the  cus- 
tody of  property  and  funds  belonging  to  some  one  else. 

Nelson  secured  a  position  as  cashier  with  the  Shore  Line  Navigation 
Company.  They  required  him  to  furnish  a  bond  for  one  thousand  dollars, 
by  which  his  honesty  and  fidelity  would  be  guaranteed.  Nelson  made  ap- 
plication to  a  bonding  company,  who  furnished  the  bond.  Should  he  default, 
the  bonding  company  will  have  to  reimburse  his  employers  for  any  loss  that 
they  may  suffer  up  to  the  amount  of  the  bond. 

Notice  of  Acceptance.  —  Notice  of  the  creditor's  acceptance 
of  the  guarantee  is  not  necessary  when  the  guaranty  is  made 
at  the  same  time  as  the  main  contract,  but  in  case  of  a  continuing 
guaranty  it  seems  to  be  the  prevailing  opinion  that  notice  by  the 
creditor  is  necessary  to  hold  the  guarantor. 

Monroe  gives  a  continuing  guaranty  to  Wilson,  the  creditor,  for  pay- 
ment for  all  goods  purchased  by  Rhodes.  In  this  case  it  would  seem  to  be 
the  safest  plan  for  Wilson  to  notify  Monroe  each  time  Rhodes  makes  a 
purchase.    The  notice  should  give  the  date  of  purchase  and  the  amount. 

Notice  of  Default.  —  Courts  dififer  on  the  question  of  whether 
the  creditor  must  notify  the  guarantor  in  case  the  principal 
defaults  in  his  obKgations  covered  by  the  guaranty. 

In  states  requiring  notice  the  following  rules  are  observed: 
I.   Failure  to  notify  guarantor  always  discharges  him  if  he 
is  injured  as  a  result  of  not  being  notified. 


DISCHARGE  OF  GUARANTOR  197 

2.  The  guarantor  is  discharged  for  want  of  notice  if  the 
amount  for  which  he  is  bound  is  not  known  to  him. 

In  view  of  the  many  conflicting  rules  and  opinions,  the 
safer  plan  is  to  give  notice. 

Discharge  of  Guarantor.  —  A  guarantor  may  be  discharged 
from  his  contract  of  guaranty  for  the  following  reasons: 

1.  Alteration  of  the  contract  of  guaranty. 

2.  Voluntary  release  of  the  principal. 

3.  Extension  of  time  to  the  principal. 

4.  Revocation  of  guaranty  by  guarantor. 

5.  Surrendering  possession  of  securities  by  the  creditor. 

6.  Failure  of  creditor  to  take  action  against  the  debtor  after 
notice. 

7.  Death  of  the  guarantor. 

8.  Continued  employment  of  principal  after  dishonesty  was 
discovered. 

9.  Where  the  main  contract  is  illegal  and  nonenforceable. 
Alteration  of  a  Contract  of  Guaranty.  —  Where  the  creditor 

has  changed  the  terms  or  made  any  other  material  alteration  in 
the  contract  with  the  principal  without  the  guarantor's  consent, 
he  is  discharged. 

Foster  guaranteed  the  payment  of  a  6%  interest  60-day  note  given  by 
Hatch  to  Munson.  Munson  on  request  of  Hatch  and  without  Foster's  con- 
sent changed  the  time  to  one  month.  This  is  a  material  alteration  and  dis- 
charges Foster. 

Release  of  the  Principal.  —  Where  the  creditor  voluntarily 
releases  or  discharges  the  principal  without  the  consent  of  the 
guarantor  the  guarantor  is  also  discharged. 

Miner  guaranteed  a  debt  owed  by  Van  Dyke  to  Wheeler.  Wheeler 
agreed  with  Van  Dyke  to  accept  60  per  cent  of  the  amount  of  the  debt 
and  give  him  a  release  under  seal  for  the  full  amount  of  the  debt.  This 
discharges  Mirier. 

Had  Van  Dyke  been  forced  into  bankruptcy  and  paid  only 
60  per  cent  on  a  dollar,  this  would  have  been  an  involuntary 
release  and  Miner  would  not  be  discharged. 

Extension  of  Time.  —  When  the  creditor  makes  a  definite 
extension  of  the  time  of  payment  to  the  debtor,  without  the 
consent  of  the  guarantor,  the  guarantor  is  discharged. 


198  GUARANTY 

Bower  guaranteed  payment  of  a  debt  due  September  15.  The  creditor, 
without  Bower's  consent,  extended  the  time  to  November  15.  This  act  of 
the  creditor  in  extending  the  time  discharged  Bower. 

Revocation  of  Guaranty.  —  When  the  consideration  for  the 
guaranty  is  an  act  to  be  done  in  the  future  by  the  creditor,  the 
guarantor  may  revoke  the  guaranty  any  time  before  the  act 
is  done  and  by  so  doing  he  is  discharged.  This  applies  to  con- 
tinuing guaranties. 

Cummings  guaranteed  payment  for  all  goods  purchased  by  Steele  from 
Post,  on  and  after  September  i.  On  December  i,  Cummings  notified  Post 
that  he  would  no  longer  guarantee  payment  for  goods  purchased  by  Steele. 
As  soon  as  Post  receives  this  notice,  Cummings  is  discharged  as  a  guarantor 
for  all  indebtedness  incurred  thereafter. 

Surrender  of  Securities.  —  When  the  creditor  voluntarily 
surrenders  securities  held  by  him  as  security  for  the  debt  guar- 
anteed, the  guarantor  is  discharged. 

Failure  of  the  Creditor  to  Take  Action.  —  In  some  states, 
when  the  guarantor  directs  the  creditor  to  take  action,  which 
he  has  a  legal  right  to  take,  and  the  creditor  fails  to  do  so,  the 
guarantor  is  discharged. 

This  rule  does  not  apply  to  an  indorser  of  a  negotiable  instru- 
ment. 

Death  of  Guarantor.  —  Death  of  the  guarantor  discharges 
the  contract  of  guaranty  and  has  the  same  effect  as  a  revocation. 
In  some  states  notice  of  the  death  must  be  given  in  order  to 
relieve  the  guarantor's  estate  from  further  liability. 

Continued  Employment  of  Principal  after  Dishonesty  was 
Discovered.  —  When  the  employer  willingly  retains  in  his  em- 
ploy a  dishonest  employee,  after  he  is  known  to  be  dishonest, 
the  guarantor,  who  guaranteed  his  honesty,  will  be  discharged. 

Main  Contract  Nonenforceable.  —  When  the  main  contract 

is  illegal  and  not  enforceable  against  the  principal,  the  contract 

of  guaranty,  which  is  collateral  to  the  main  contract,  could  not 

be  enforced  and  the  guarantor  would  be  discharged. 

Anderson  guaranteed  the  payment  of  a  note  with  interest  at  8% 
in  a  state  where  8%  was  more  than  the  legal  rate.  Because  of  the  usury, 
the  contract  was  illegal  and  nonenforceable  and  Anderson  would  be  dis- 
charged from  his  contract  of  guaranty. 

Guarantor's  Liability.  —  Under  the  terms  of  the  contract, 

the  guarantor's  liabilities  are  fixed.    In  substance  he  guarantees 


RIGHTS  OF  GUARANTOR  199       \ 

performance  on  the  part  of  some  one  else,  and  if  the  one  whose 
obligation  is  guaranteed  does  not  fulfill  it,  the  guarantor  is 
liable.  i 

Rights  of  Guarantor.  —  A  guarantor  who  has  been  required      ] 
to  pay  his  principal's  debt  or  obligation  has  certain  rights  which 
he  may  exercise.  ] 

1.  He  has  a  right  to  claim  indemnity  from  his  principal.         ] 

2.  He  has  a  right  to  be  subrogated  to  the  creditors'  claims       j 
to  all  collateral  securities.  { 

3.  He  has  a  right  to  demand  contribution  from  his  co-      j 
guarantor. 

Right  of  Indemnity.  —  The  guarantor  has  a  right  to  recover      i 
from  his  principal  all  moneys  rightly  paid  on  account  of  the 
guaranty,   together  with  all  expenses  reasonably  incurred  by      \ 
him  in  defending  any  action  by  creditors.  j 

Right  to  be  Subrogated.  —  When  the  guarantor  pays  the 
debt,  he  is  entitled  to  all  securities  held  by  the  creditors  as       ] 
security  for  the  debt  which  he  has  paid.    Such  a  substitution  of       i 
one  person  for  another  in  the  rights  of  a  creditor  is  called  sub-      \ 
rogation. 

Contribution   from    Co-guarantors.  —  When    two    or   more 
persons  guarantee  a  debt  or  obligation  and  one  has  to  or  does       : 
pay  the  entire  debt,  he  is  entitled  to  contribution  from  each  co-       ; 
guarantor   for  his  pro  rata  share,  unless  a  different  basis  of 
liability  has  been  agreed  upon  by  the  guarantors.  ] 

Guaranty  Compared  with  Suretyship.  —  In  the  case  of  a 
guaranty,  the  guarantor  becomes  liable  only  where  the  principal 
fails,  while  in  the  case  of  suretyship  the  surety  makes  the  princi-       ; 
pal's  debt  or  obligation  his  debt  or  obligation  and  he  is  bound 
severally  with  the  principal,  upon  the  original  contract.  \ 

Hayes  gave  Banning  a  promissory  note  for  $500.    Jewett  signed  the  l 

note  with  Hayes  as  surety.    When  the  note  falls  due,  Banning  may  ignore  < 
Hayes  entirely  and  demand  payment  of  Jewett  and  Jewett  will  have  to 

pay  the  note.  . 

Suretyship.  —  Aside  from  the  difference  in  the  nature  of  the      ] 
contracts,  suretyship  and  guaranty  conform  to  the  same  legal 
requirements,  and  the  principles  of  law  applicable  to  one  are 
appUcable  to  the  other.  >. 


200  GUARANTY 

QUESTIONS 

1.  What  is  a  contract  of  guaranty? 

2.  Who  are  the  parties  to  a  contract  of  guaranty? 

3.  What  are  the  special  requirements  in  a  contract  of  guaranty? 

4.  Why  must  a  contract  of  guaranty  be  in  writing? 

5.  What  is  the  usual  consideration  for  the  guarantor's  or  surety's 
promise? 

6.  When  will  a  new  consideration  be  required  to  support  a  contract 
of  guaranty? 

7.  What  is  the  difference  between  a  guaranty  of  collection  and  a 
guaranty  of  payment? 

8.  Mention  the  different  kinds  of  guaranty. 

9.  What  is  the  purpose  of  a  guaranty  of  title  to  real  property? 

10.  Under  what  circumstances  would  an  employer  require  a  fidelity 
bond  of  an  employee? 

11.  What  are  fidelity  bonds  and  who  issues  them? 

12.  What  are  the  rules  governing  notice  of  acceptance  by  creditors? 

13.  In  case  of  default,  must  notice  be  sent  to  the  guarantor?  Ex- 
plain. 

14.  How  is  the  guarantor's  Hability  fixed? 

15.  How  may  a  guarantor  be  discharged  from  his  contract? 

16.  What  are  the  special  rights  of  the  guarantor? 

17.  How  does  the  liability  of  a  surety  differ  from  the  liability  of  a 
guarantor? 

i8<i  What  must  the  creditor  do  before  he  can  proceed  against  a 
guarantor?     Against  a  surety? 

19.  What  is  the  right  of  subrogation? 

20.  When  there  are  two  or  more  guarantors  and  one  settles  the  whole 
debt,  what  special  right  has  he? 

21.  If  the  creditor  and  the  principal  debtor,  without  the  consent  of 
the  guarantor,  alter  the  original  contract,  how  does  this  affect  the  guaranty? 

22.  What  effect  does  the  death  of  the  guarantor  have  upon  his  con- 
tract? 

IMPORTANT  POINTS 

A  contract  of  guaranty  or  suretyship  is  subject  to  all  legal  re- 
quirements of  contracts  in  general. 

A  guarantor's  undertaking  is  collateral  to  that  of  his  principal. 

A  surety  is  one  who  makes  his  principaPs  debt  his  own  debt. 

A  guarantor  is  usually  entitled  to  demand  or  notice  within  a 
reasonable  time  after  default  of  payment. 

A  surety  is  not  entitled  to  demand  or  notice.  He  is  bound 
whether  notice  is  given  or  not. 

If  one  surety  or  guarantor  pays  the  whole  debt  he  is  entitled  to 
contribution. 


TEST  QUESTIONS  201 

No  additional  consideration  is  required  in  a  contract  of  guaranty 
or  suretyship  made  concurrently  with  the  original  contract. 

A  new  consideration  is  required  in  all  contracts  of  guaranty  and 
suretyship  which  are  entered  into  subsequent  to  the  original 
contract. 

A  guarantor's  obligations  are  fixed  by  the  terms  of  the  contract. 

Causes  which  will  discharge  the  principal  will  serve  to  discharge 
the  guarantor  or  surety. 

An  indorser's  contract  is  collateral  to  that  of  the  maker  or  princi- 
pal the  same  as  a  guarantor's  contract,  while  a  surety's  contract  is 
primary  and  directly  enforceable. 

TEST    QUESTIONS 

1.  How  must  a  contract  of  guaranty  be  evidenced? 

2.  What  is  the  difference  between  an  indorser's  contract  and  a  guar- 
antor's contract? 

3.  When  a  guarantor  is  not  notified  of  a  default  by  the  principal, 
what  is  the  effect  on  the  guarantor's  liability? 

4.  May  the  creditor  proceed  against  the  guarantor  without  first  pro- 
ceeding against  the  principal? 

5.  How  does  the  liability  of  surety  differ  from  that  of  the  indorser 
of  a  negotiable  instrument? 

6.  Davis  is  indebted  to  Lamb  and  is  unable  to  pay  his  debt.  The 
debt  was  overdue  when  Davis  induced  Merritt,  a  friend  of  his,  to  sign  a 
guaranty  of  the  debt.    Is  Merritt  liable  on  the  guaranty?    Explain. 

7.  In  the  case  just  mentioned,  Lamb  agreed  to  withdraw  legal  pro- 
ceedings if  Davis  would  get  some  one  to  guarantee  the  debt.  Merritt  was 
induced  by  Davis  to  guarantee  the  debt.     Is  Merritt  liable?    Explain. 

8.  Maxwell  is  a  surety  for  Green  on  Green's  debt.  Maxwell  pays  the 
debt  before  any  demand  has  been  made  on  Green  by  the  creditors.  Is 
Maxwell  entitled  to  be  reimbursed  by  Green? 

9.  James  is  the  guarantor  of  Burt's  debt  to  Hinds.  Hinds  gave  Burt 
a  release.    What  effect  does  this  have  on  James'  obligation?    Explain. 

10.  Has  the  surety  a  right  to  take  advantage  of  any  defenses  that 
might  be  used  by  the  debtor? 

CASE    PROBLEMS 

Give  the  decision  and  the  principle  oj  law  involved  in  each  case. 
I.   Cochran  wished  to  open  an  account  with  Dean  and  to  purchase 
provisions  on  credit.    Dean  would  not  give  Cochran  credit  unless  some  one 


202  GUARANTY 

would  guarantee  payment  of  the  account.     Cochran  induced  a  friend  of 
his,  by  the  name  of  Jacobs,  to  sign  a  statement  as  follows : 

"I  hereby  guarantee  to  any  person  selling  goods  to  Cochran,  not  ex- 
ceeding $500,  that  if  he  does  not  pay  the  account  when  due,  I  will."  Dated 
and  signed,  John  C.  Jacobs. 

When  the  account  came  due,  Cochran  failed  to  pay  and  Dean  took 
action  against  Jacobs.    Can  he  recover? 

2.  Had  this  guaranty  been  made  in  writing  as  shown  above  after 
the  goods  had  been  purchased  and  the  credit  given,  could  Dean  have  col- 
lected from  Jacobs? 

3.  Sullivan  contracted  to  erect  a  house  for  Bertine.  Bertine  required 
that  Sullivan  furnish  a  bond,  signed  by  two  responsible  citizens,  that  he, 
Sullivan,  would  faithfully  perform  his  contract  and  that  he  would  re- 
imburse Bertine  for  any  loss.  Sullivan  failed  to  pay  his  subcontractors 
and  the  masons  filed  a  mechanics'  lien  against  the  house.  Bertine  had  to 
settle  this  lien,  which  was  more  than  the  amount  he  still  owed  Sullivan.  He 
took  action  against  the  bondsmen.    Can  he  recover  from  them?    Explain. 

4.  Rupert  guaranteed  the  collection  of  a  certain  note.  When  the 
note  became  due,  the  holder  presented  it  to  the  maker,  who  refused  pay- 
ment, and  then  sent  notice  to  Rupert  that  payment  had  been  refused  and 
that  he  would  look  to  him  for  the  payment  of  the  note.  Rupert  paid  no 
attention  to  this  and  very  soon  after  the  holder  of  the  note  took  action 
against  Rupert  to  recover  payment.    Can  he  succeed? 

5.  Hersh  purchased  a  building  lot  and  had  the  title  searched  and 
insured  by  the  Central  Title  Guaranty  Company.  Some  time  after,  Hersh 
received  notice  that  there  was  a  tax  lien  of  several  dollars  against  the 
property.  He  notified  the  title  company  and  they  refused  to  pay  the  lien, 
claiming  that  they  were  not  responsible  for  tax  items.  Hersh  took  action 
against  the  title  company  to  recover  damages.     Can  he  succeed? 

6.  Clary  secured  a  position  as  messenger  with  a  local  bank.  The 
bank  required  that  Clary  furnish  a  fidelity  bond  of  $1000,  which  he  did. 
Clary  was  found  guilty  of  appropriating  bank  funds  to  his  own  use.  The 
bank  notified  the  Bonding  Company  and  forwarded  a  claim  to  them  for 
the  funds  which  Clary  had  appropriated,  but  did  not  discharge  Clary. 
The  Bonding  Co.  refused  to  reimburse  the  bank  for  the  loss  and  the  bank 
took  action  to  recover.    Can  it  succeed?    Explain. 

7.  Harding  guaranteed  the  payment  of  a  3 -months  note  given  by 
Murry  to  Philips.  After  Harding  had  guaranteed  the  payment  of  this 
note.  Philips  changed  the  time  to  6  months  and  added  with  interest  at  6%. 
Harding  did  not  hear  anything  from  his  contract.    When  the  note  became 


CASE  PROBLEMS  203 

due,  Murry  failed  to  pay  and  Philips  notified  Harding.  Harding  dis- 
covered the  alterations  and  refused  to  settle.  What  are  the  rights  of  the 
parties? 

8.  On  October  27  Adams  gave  his  promissory  note  to  Marsh,  with 
Wendell  as  surety.  The  note  was  due  on  December  27.  When  it  be- 
came due  Wendell  requested  Marsh  to  collect  the  note.  Instead,  he  orally 
agreed  with  Adams  for  a  consideration  to  extend  the  note  for  one  year. 
At  the  end  of  this  time  Adams  failed  to  pay  and  Marsh  took  action  against 
Wendell  to  recover.    Can  he  succeed? 

9.  Ward  signed  a  note  with  Harvey  at  Harvey's  request  and  Harvey 
agreed  to  hold  Ward  harmless  and  to  indemnify  him  against  loss.  Ward 
paid  the  note  and  brought  suit  against  Harvey  without  giving  him  any 
notice  of  his  payment.    Can  he  collect? 

10.  Baker  was  surety  on  a  bond  of  an  executor.  The  executor  mis- 
appropriated funds  belonging  to  the  estate,  and  when  demands  were  made 
on  him  by  those  who  were  entitled  to  the  estate,  he  said  he  was  unable  to 
pay.  Suit  was  then  brought  against  Baker  as  surety,  who  defended  on  the 
ground  that  no  demand  had  been  made  on  him.    Is  he  bound?    Explain. 


BAILMENT 

I.   IN  GENERAL 

Definition.  —  Bailment  is  defined  as  a  delivery  of  some  chattel 
by  one  party  to  another,  to  be  held  according  to  the  special  pur- 
pose of  delivery,  and  to  be  returned  or  redelivered  when  that 
special  purpose  is  accomplished.  As  we  have  already  seen,  a 
bailment  dififers  from  a  sale,  in  that  the  title  to  the  property 
does  not  pass  in  a  bailment.  Practically  every  case  in  which 
one  receives  and  holds  or  handles  the  personal  property  of  another, 
without  buying  it  or  receiving  it  as  a  gift,  is  a  case  of  bail- 
ment. When  one  borrows  or  lends  a  book,  hires  a  horse,  or 
sends  a  package  by  express,  he  is  within  the  rules  of  bailment. 
Where  the  possession  but  not  the  title  has  passed  to  the  vendee, 
which  case  we  have  considered  in  the  chapter  on  sales,  the  ven- 
dee holds  as  bailee. 

The  parties  to  a  bailment  are  the  bailor,  or  the  owner  of  the 

chattel  who  delivers  it  over,  and  the  bailee,  who  is  the  party 

vested  with  the  temporary  custody  of  the  chattel. 

All  loans  of  articles  to  be  used  for  a  certain  purpose  and  to  be  returned 
by  the  borrower  when  that  purpose  has  been  accomplished;  all  storage 
agreements  whereby  one  party  takes  into  his  custody  and  care  for  a  com- 
pensation or  otherwise  the  goods  or  property  of  another;  and  all  cases  of 
hiring  the  use  of  any  article  or  chattel  for  any  particular  purpose  are  bail- 
ments. Whenever  an  article  is  found  and  taken  into  custody  by  the  finder; 
when  an  article  is  taken  to  a  shop  to  be  repaired;  and,  in  fact,  whenever  there 
is  a  change  of  possession  of  goods  for  a  purpose  agreed  upon  by  the  parties 
without  a  change  of  ownership,  the  agreement  is  a  bailment  contract  and 
subject  to  the  rules  and  laws  governing  bailments. 

How  Created.  —  A  bailment  is  created  by  a  contract  be- 
tween the  bailor,  the  party  who  owns  or  controls  and  delivers 
the  goods,  and  the  bailee,  the  party  to  whom  the  goods  are 
delivered.  (Goods  in  this  connection  may  be  any  personal 
property.)  The  contract  should  specify  the  purpose  for  which 
the  bailment  is  created,  the  duration  of  the  bailment,  the  use 
that  is  to  be  made  of  the  thing  bailed,  and  any  other  facts  which 
may  be  necessary  to  determine  the  respective  rights  of  the  bailor 
and  bailee. 

204 


IN  GENERAL  205 

Classification.  —  Bailments  are  generally  classified  as  follows: 

1.  Bailment  for  the  benefit  of  the  bailor, 

2.  Bailment  for  the  benefit  of  the  bailee, 

3.  Bailment  for  the  benefit  of  both  the  bailor  and  bailee. 
The  last  bailment,  for  the  mutual  benefit  of  both  parties,  is 

again  classihed  as  ordinary  and  exceptional,  the  exceptional 
bailments  being  those  of  innkeeper  and  of  common  carrier.  All 
other  cases  of  bailment  for  mutual  benefit  of  bailor  and  bailee 
are  ordinary  bailments. 

Degrees  of  Care.  —  In  all  cases  of  bailment  a  certain  degree 
of  care  is  required  of  the  bailee.  A  lack  of  the  required  care  is 
termed  negligence  and  renders  the  bailee  liable. 

There  are  three  degrees  of  care,  namely,  great,  ordinary, 
and  slight.  Ordinary  care  may  be  defined  as  the  care  which  a 
person  of  ordinary  prudence  would  take  of  his  own  property. 
Anything  more  than  ordinary  care  would  be  considered  great 
care  and  anything  less  would  be  considered  slight  care.  While 
there  are  three  degrees  of  negligence  mentioned  by  some  authors 
the  weight  of  authority  seems  to  favor  but  one  degree,  and 
whether  or  not  negligence  exists  in  a  particular  case  will  depend 
upon  whether  the  bailee  has  given  the  property  the  required 
degree  of  care. 

When  the  bailment  is  for  the  benefit  of  the  bailor,  the  bailee 
is  expected  to  take  slight  care  of  the  property,  and  failing  to  do 
so  he  would  be  responsible  for  negligence,  which  some  would 
term  gross  negligence.    - 

When  the  bailment  is  for  the  benefit  of  the  bailee  he  is  ex- 
pected to  take  great  or  extraordinary  care  of  the  property,  and 
should  he  fail  to  do  so,  he  is  responsible  for  negligence  (slight 
negligence) . 

When  the  bailment  is  for  the  benefit  of  both  the  bailor  and 
bailee,  the  bailee  is  expected  to  take  ordinary  care  of  the  prop- 
erty, and  his  failing  to  do  so  would  amount  to  negligence  (ordi- 
nary negligence). 

Besides  the  degree  of  care  that  is  demanded  of  the  bailee, 
the  law  requires  that  he  act  honestly  and  in  good  faith.  He 
must  not  abuse  his  trust  nor  sell,  pledge,  or  otherwise  deal 
with  the  property  in  his  hands  as  though  he  were  the  owner. 


2o6  BAILMENT  ^ 

Tortious  Bailee.  —  When  property  comes  into  possession 
of  one  not  its  owner  as  a  result  of  theft,  fraud,  or  of  finding  any 
lost  property,  a  tortious  bailment  results.  This  bailment  is 
not  the  result  of  a  contract  but  is  imposed  by  law  for  the  pro- 
tection of  the  owner.  A  tortious  bailee  will  be  held  more  strictly 
accountable  for  the  care  of  the  property  than  an  ordinary  bailee. 
He  will  be  absolutely  liable  for  any  loss  that  may  occur  while 
the  property  is  in  his  possession,  even  if  he  is  not  negligent. 
When  one  finds  property  he  is  not  bound  to  take  it  into  his 
custody,  but  if  he  does  he  must  assume  full  responsibility.  He 
should  make  a  reasonable  effort  to  find  the  right  owner  and  in 
case  he  fails  to  do  so,  he  may  treat  the  property  as  his  own. 
If  he  fails  to  make  an  effort  to  find  the  owner  he  is  a  tortious 
bailee.  Expenses  incurred  by  the  finder  in  connection  with  the 
article  found,  may  be  recovered  from  the  owner  before  the 
article  is  surrendered  to  him. 

Liability  Varied  by  Contract.  —  As  a  general  rule  the  parties 
to  a  bailment  may  by  contract  vary  the  rights  or  liabilities  of 
the  parties,  making  the  liability  of  the  bailee  either  greater  or 
less  than  it  would  otherwise  be,  except  that  the  law  will  not 
allow  the  bailee  to  be  exempt,  even  by  contract,  from  the  conse- 
quences of  his  own  willful  misconduct. 

Bailment  through  an  Agent.  —  Either  party  to  a  contract  of 
bailment  may  act  through  an  agent,  and  delivery  to  the  agent  of 
the  bailee  is  delivery  to  the  bailee. 

QUESTIONS 

1.  What  is  a  bailment? 

2.  What  is  the  difference  between  a  sale  and  a  bailment? 

3.  What  are  the  parties  to  a  bailment  called? 

4.  Give  an  example  of  a  bailment. 

5.  How  is  a  bailment  created? 

6.  What  should  the  bailment  contract  specify? 

7.  How  are  bailments  classified  according  to  the  benefit? 

8.  What  are  the  three  degrees  of  care  required  of  the  bailee? 

9.  How  may  ordinary  care  be  defined? 

10.  How  is  it  determined  whether  or  not  the  bailee  has  been  negligent? 

11.  What  requirements  other  than  the  care  does  the  law  impose  on 
the  bailee? 

12.  Wherein  does  a  tortious  bailment  differ  from  an  ordinary  bailment?* 


BAILMENT  FOR  BAILOR'S  SOLE  BENEFIT  207 

13.  What  responsibility  is  imposed  on  the  finder  of  a  lost  article  and 
what  are  his  duties  with  reference  to  the  article  found? 

14.  May  a  bailee  vary  or  limit  his  liabilities  by  contract?    Explain. 

2.   BAILMENT  FOR  THE   BAILOR'S   SOLE   BENEFIT 

Definition.  —  This  class  of  bailment  arises  frequently  in 
everyday  life.  Every  undertaking  of  a  friend  or  neighbor  to 
hold  or  convey  an  article  of  personal  property  gratuitously  and 
as  a  favor  comes  under  this  class. 

To  illustrate,  A  stores  B's  wagon  in  his  barn  gratuitously; 
or  he  takes  it  to  perform  some  work  upon  it,  as  to  paint  it,  with- 
out charge;  or  it  may  be  he  carries  it  from  one  place  to  another, 
as  to  take  B's  wagon  home  for  him.  A  bailment  for  the  bailor's 
benefit  may  come  under  any  one  of  these  three  classes,  or  it 
may  combine  two  or  all  of  them. 

Liability  of  Bailee.  —  An  agreement  by  the  bailee  to  carry 
out  the  gratuitous  bailment  cannot  be  enforced  because  of  the 
lack  of  consideration,  but  when  the  bailee  receives  the  property 
and  carries  out  the  bailment,  he  is  bound  to  do  it  with  care, 
and  he  will  be  liable  for  neglecting  to  take  the  required  care  of 
the  property  or  for  wrongful  acts  in  relation  thereto. 

It  is  often  difficult  to  determine  whether  a  bailment  is  gratui- 
tous or  is  for  the  mutual  benefit  of  the  parties,  that  is,  whether 
or  not  the  bailee  is  entitled  to  compensation.  The  original  intent 
of  the  parties  is  the  test.  If  the  bailee  receives  the  chattel  in  the 
usual  course  of  his  business,  and  business  usage  and  his  ordinary 
method  of  dealing  give  him  the  right  to  demand  compensation, 
the  bailment  is  not  considered  gratuitous,  even  though  nothing 
was  said  as  to  compensation. 

Barton  took  twenty-five  U.  S.  bonds  to  his  bank  and  left  them  there 
for  safe  keeping;  nothing  was  said  at  the  time  about  compensation.  As 
the  bank  makes  a  business  of  taking  valuable  securities  and  documents 
for  safe  keeping  and  charging  for  doing  so,  Barton  will  be  expected  to  pay 
the  bank's  regular  charges  for  keeping  his  bonds. 

But  if  the  bailee  undertakes  the  service  for  a  near  relative  or 
personal  friend,  or  out  of  mere  charity  or  favor,  and  if  the  trust 
puts  him  to  but  little  trouble  and  the  bailment  is  out  of  his  usual 
course  of  business,  it  is  presumed  to  be  without  compensation. 


2o8  BAILMENT 

Lowe  expects  to  be  away  for  a  month  and  he  leaves  his  motorcycle 
with  a  friend  of  his  to  be  cared  for  during  this  time.  As  this  is  a  bailment 
out  of  the  usual  course  of  the  friend's  business  it  is  presumed  to  be  with- 
out compensation. 

Degree  of  Care  Necessary.  —  In  this  class  of  bailment,  as  we 
have  seen,  only  the  lowest  degree  of  care  and  diligence  is  re- 
quired of  the  bailee;  that  is,  slight  care,  and  he  is  not  held 
liable  for  loss  or  injury  unless  guilty  of  not  exercising  the  re- 
quired degree  of  care. 

No  absolute  rule  can  be  laid  down  as  to  just  how  a  gratuitous 
bailee  must  care  for  the  chattel  in  his  charge.  The  circum- 
stances of  the  case  control;  that  is,  different  care  would  be 
required  of  the  person  who  receives  a  watch  or  a  valuable  vase, 
from  that  expected  of  the  person  who  receives  a  wagon  or  a  load 
of  stone.  It  is  said  that  a  gratuitous  bailment  seldom  demands 
skilled  labor  or  care,  and  the  gratuitous  bailee  is  excused  from 
the  results  of  inevitable  accident,  accidental  fire,  etc. 

Spooner  and  Mattoon  were  soldiers  in  camp,  occupying  tents  lo  rods 
apart.  Spooner  had  considerable  money,  and  fearing  it  might  not  be  safe 
left  it  with  his  friend,  Mattoon,  without  expectation  of  reward,  for  safe 
keeping.  For  two  nights  he  so  left  it,  and  came  for  it  in  the  morning.  On 
the  third  morning  he  did  not  call  for  it,  and  Mattoon  started  for  Spooner's 
tent  with  the  money.  He  put  it  under  his  arm  inside  of  his  vest,  so  that 
the  pocketbook  would  not  be  seen.  It  slipped  out  and  was  lost.  Held, 
that  Mattoon  was  not  guilty  of  gross  negligence,  so  was  not  liable. 

—  Spooner  v.  Mattoon,  40  Vt.  300. 

Use  of  Property.  —  In  bailments  of  this  class  the  question 
arises  as  to  whether  or  not  the  gratuitous  bailee  may  use  the 
thing  bailed  to  him.  Clearly,  he  cannot  make  any  use  of  it 
except  for  the  bailor's  benefit,  otherwise  the  bailment  would 
not  be  included  in  this  class.  When  the  bailee  accepts  the  cus- 
tody of  an  animal,  he  undertakes  to  feed  and  care  for  it.  Proper 
care  would  require  him  to  drive  a  horse  for  exercise,  to  milk  a 
cow,  etc.,  but  the  profits  derived  from  the  use  of  the  animal  in 
this  class  of  bailment  go  to  the  bailor.  The  bailee  has  a  right 
to  incur  necessary  expenses  in  caring  for  the  thing  bailed. 

Dillon  deposited  in  the  hands  of  Devalcourt  merchandise  to  be  sold, 
the  proceeds  to  be  applied  on  a  debt  which  he  owed  to  Devalcourt.  Held, 
that  whatever  useful  and  necessary  expenses  Devalcourt  incurred  in  ful- 
filling the  bailment  were  chargeable  to  Dillon. 

—  Devalcourt  v.  Dillon,  12  La.  Annual  672,  A. 


BAILMENT  FOR  BAILEE'S  SOLE  BENEFIT  209 

Termination.  —  This  class  of  bailment  is  terminated  either 
by  the  accomplishment  of  the  purpose  of  the  bailment  or  by 
the  express  act  of  either  party.  The  bailee  may  surrender  the 
article  bailed,  and  so  terminate  the  relation,  or  the  bailor  may 
make  a  demand  and  recover  the  chattel.  When  the  bailment 
is  for  the  purpose  of  accomplishing  some  act,  as  the  delivery 
of  a  chattel  from  one  place  to  another,  the  bailee,  after  under- 
taking the  bailment,  must  accomplish  it  with  at  least  slight 
care,  or  be  responsible  for  breach  of  contract.  But  by  mutual 
assent,  the  bailment  may  be  terminated  at  any  time.  The 
delivery  of  the  identical  chattel  is  necessary.  If  it  is  in  a  bettered 
condition,  the  bailee  derives  no  benefit;  and  if  in  worse,  it  is 
not  his  loss  unless  due  to  his  lack  of  slight  diligence  or  care. 

QUESTIONS 

1.  Give  an  example  of  a  bailment  for  the  bailor's  benefit. 

2.  Is  an  agreement  for  a  gratuitous  bailment  enforceable  by  either 
party? 

3.  May  either  party  to  a  bailment  contract  act  through  an  agent? 
Explain. 

4.  What  degree  of  care  is  necessary  in  a  bailment  for  the  bailor's 
benefit? 

5.  In  such  a  bailment,  when  may  the  bailee  use  the  thing  bailed? 

6.  How  may  a  bailment  for  the  bailor's  benefit  be  terminated? 

3.  BAILMENT  FOR  BAILEE'S   SOLE  BENEFIT 

Definition.  —  This  class  of  bailment  consists  of  the  gratuitous 
loan  for  use.  The  bailee  is  what  we  call  in  ordinary  language 
the  "  borrower."  When  a  man  lends  his  lawn  mower  or  his 
bicycle  to  a  friend  to  use  and  afterwards  to  be  returned,  the 
loan  is  a  bailment  for  the  bailee's  sole  benefit. 

The  bailor  must  voluntarily  give  the  possession  of  the  article 
to  the  bailee  without  exacting  any  recompense  for  its  use.  This 
bailment  must  be  distinguished  from  the  loan  of  something  that 
is  to  be  consumed  and  afterwards  to  be  paid  back  in  kind,  as 
flour  or  grain,  which  is  in  fact  no  bailment  at  all,  but  a  barter; 
that  is,  the  exchange  of  the  particular  property  for  another  of  a 
like  kind. 


2IO  BAILMENT 

The  loan  may  be  for  a  definite  period  or  at  the  will  of  the 

bailor,  who  may  terminate  it  whenever  he  pleases. 

Clapp  sued  to  recover  the  possession  of  a  wagon  and  two  mules  which 
he  had  loaned  to  Nelson  for  "a  day  or  two,"  but  which  Nelson  had  neglected 
to  return.  Held,  that  when  property  is  loaned  for  a  definite  period  or  for 
a  day  or  two  or  a  week  or  two,  if  it  is  not  returned  at  the  end  of  the  longer 
period,  the  lender  can  bring  an  action  for  it  without  first  making  a  demand 
for  the  property.  —  Clapp  v.  Nelson,  12  Texas  370. 

Responsibility  of  Bailee.  —  The  bailee  being  the  only  one 
benefited,  the  duty  devolves  upon  him  to  exercise  the  highest 
degree  of  care  or  diligence  in  the  use  of  the  chattel,  or,  as  it  is 
expressed,  he  is  bound  to  use  great  diligence,  and  is  responsible 
for  every  loss  which  is  occasioned  by  not  doing  so. 

Great  diligence,  then,  is  such  as  one  more  than  ordinarily 
careful  would  bestow  upon  his  property  under  like  circum- 
stances. Such  a  high  degree  of  care  being  required  of  the  gra- 
tuitous bailee,  he  is  held  strictly  to  the  terms  of  the  bailment, 
and  when  he  deviates  from  these  terms  he  is  liable  for  the  loss 
or  damage  ensuing. 

Cuthbertson  borrowed  a  horse  to  ride  to  the  residence  of  one  Cline  and 
return  next  day,  but  instead  he  rode  a  mile  and  a  half  farther  and  in  a 
different  direction.  The  horse  died  during  its  absence  on  the  third  day 
after  leaving  home.  It  was  admitted  that  there  was  no  negligence.  Held, 
that  without  regard  to  the  question  of  negligence  the  bailee  is  liable  for 
any  injury  which  results  from  his  departure  from  the  contract. 

—  Martin  v.  Cuthbertson,  64  N.  C.  328. 

But  where  the  borrower,  while  using  the  chattel  within  the 

terms  of  the  bailment,  encounters  some  accident  whereby  the 

thing  loaned  is  injured  or  lost  without  even  slight  negligence 

on  his  part,  he  is  not  Hable.    If  the  chattel  is  injured  or  destroyed 

by  inevitable  accident  or  by  fire,  or  if  it  is  an  animal  and  dies  a 

natural  death,  the  loss  will  not  fall  upon  the  bailee  unless  he  is 

in  fault. 

Beller  loaned  a  flag  to  Schultz.  After  it  was  hoisted  a  hailstorm  came 
up  and  damaged  it.  Held,  that  in  the  absence  of  proof  that  Schultz  had 
failed  to  take  due  care  of  the  flag,  he  was  not  liable.  A  borrower  of  property 
is  not  an  insurer,  even  though  it  be  gratuitously  loaned. 

—  Beller  v.  Schultz,  44  Mich.  529. 

Use  of  Property.  —  As  we  have  seen,  this  class  of  bailment 
carries  with  it  the  right  to  use  the  chattel,  subject  to  such  con- 
ditions and  limitations  as  the  bailor  may  be  reasonably  sup- 


BAILMENT  FOR  MUTUAL  BENEFIT  211 

posed  to  have  made.  Such  expense  as  may  be  necessary  to 
preserve  the  chattel  while  in  use  is  to  be  paid  by  the  borrower, 
as  feeding  and  sheltering  a  horse  or  other  domestic  animals. 
But  any  extraordinary  expense  which  wholly  preserves  the  prop- 
erty for  the  owner  may  properly  be  chargeable  to  the  bailor. 

It  is  expected  when  a  person  borrows  an  article  to  use  that 
the  use  will  be  personal;  that  is,  the  thing  borrowed  will  be  used 
by  the  borrower.  Circumstances  may  change  this.  For  ex- 
ample: a  merchant,  who  is  not  known  to  engage  in  manual 
labor,  may  borrow  a  plow.  It  would  not  be  expected  that  he 
was  to  use  the  plow,  but  instead,  that  it  would  be  used  by  some 
one  employed  by  him. 

A3  soon  as  the  bailment  is  ended,  either  by  the  expiration  of 
the  term,  the  act  of  the  bailor,  or  the  mutual  agreement  of  the 
parties,  the  borrower  must  immediately  deliver  the  property  to 
the  bailor  or  his  order. 

QUESTIONS 

1.  Give  an  example  of  a  bailment  for  the  bailee's  benefit. 

2.  What  degree  of  care  is  the  bailee  expected  to  exercise? 

3.  Under  what  conditions  would  the  bailee  be  liable  even  though  he 
exercised  the  required  degree  of  care? 

4.  Would  the  bailee  be  liable  in  case  of  accident  if  he  had  been  duly 
careful? 

5.  What  are  the  rules  with  reference  to  the  use  of  the  property  where 
the  bailment  is  for  the  bailee's  benefit? 


4.   BAILMENT   FOR  MUTUAL  BENEFIT 

Definition.  —  This  class  of  contract  differs  from  those  just 
considered  in  that  the  benefits  to  be  derived  are  mutual  instead 
of  being  confined  to  one  side.  It  is  a  business  transaction  rather 
than  an  act  of  favor  or  friendship. 

Bailments  of  this  class  may  consist  of  (i)  the  hired  service 
about  a  chattel,  (2)  the  hired  use  of  a  chattel,  or  (3)  pledge  or 
pawn. 

In  mutual  benefit  bailments  it  is  essential  that  there  be  a 
recompense  for  the  use  of  the  chattel  or  for  the  work  to  be  be- 
stowed upon  it.    The  amount  may  be  definitely  fixed  or,  in  the 


212  BAILMENT 

absence  of  an  agreed  price,  it  may  be  such  as  shall  be  deter- 
mined to  be  just  and  reasonable. 

Chamberlin  owned  a  horse  for  which  he  had  no  use,  and,  to  avoid  the 
expense  of  keeping  it,  requested  Cobb  to  take  it  and  do  his  work  with  it 
in  consideration  of  its  feed  and  keep.  Held,  to  be  not  a  mere  gratuitous 
loan,  under  which  Cobb  would  be  required  to  exercise  extraordinary  care, 
but  a  contract  for  the  mutual  benefit  of  both  parties,  under  which  Cobb 
was  required  to  exercise  ordinary  care  in  the  keeping  and  care  of  the 
animal. — Chamberlin  v.  Cohh,  32  Iowa  161. 

Hired  Service  about  a  Chattel.  —  In  the  hired  service  about 
a  chattel  the  bailment  may  be  for  the  purpose  of  having  the 
chattel  stored  or  cared  for,  or  it  may  be  for  the  purpose  of  having 
work  performed  upon  it,  or  for  the  purpose  of  having  it  carried 
from  place  to  place.  Among  the  hired  custodians  who  store  or 
care  for  property  are  safe  depositaries,  who  for  a  consideration 
keep  valuables  in  a  safe  place,  and  warehousemen,  who  for  a 
certain  charge  keep  goods  and  merchandise  in  storage.  The 
hired  work  upon  a  chattel  includes  that  of  the  wagon-maker 
who  takes  a  wagon  to  repair  it,  of  the  watchmaker  who  takes  a 
watch  to  adjust  it,  and  of  other  classes  of  mechanics  who  re- 
ceive chattels  to  bestow  labor  of  different  kinds  upon  them. 
The  hired  carriage  of  a  chattel  may  be  performed  by  a  private 
carrier,  who  for  hire  undertakes  to  transport  a  particular  chattel, 
or  the  public  or  common  carrier  who  follows  as  a  business  the 
conveying  of  chattels  or  persons.  Private  carriers  are  within 
the  usual  rules  of  a  mutual  benefit  bailment,  while  public  carriers, 
including  railroads  and  express  companies,  come  within  a  special 
class,  which  will  be  discussed  later. 

In  the  bailment  for  hire  the  degree  of  care  or  diligence  re- 
quired of  the  bailee  is  said  to  be  ordinary  diligence,  or  such  care 
as  a  prudent  person  exercises  toward  his  own  property  under 
like  circumstances.  He  is  therefore  liable  for  loss  or  injury  to 
the  chattel  caused  by  ordinary  negligence  or,  in  other  words,  a 
failure  to  bestow  ordinary  care  and  diligence. 

Piella  wrote  to  Knights  that  he  had  a  customer  for  a  diamond  and 
requested  him  to  send  some  for  examination.  The  diamonds  were  sent  by 
Knights  and  were  stolen  while  in  Piella's  possession.  It  was  held  to  be  a 
bailment  for  mutual  benefit  and  Piella  was  not  liable  for  the  loss  unless  he 
failed  to  use  ordinary  care  and  diligence  in  his  custody  of  the  goods. 

—  Knights  V.  Piella,  1 1 1  Mich.  9. 


BAILMENT  FOR  MUTUAL  BENEFIT  213 

While  the  chattel  is  in  the  possession  of  the  workman  em- 
ployed in  working  upon  it,  if  it  is  destroyed  by  inevitable  acci- 
dent or  through  some  natural  cause  and  without  any  fault  upon 
his  part,  he  will  not  be  liable. 

A  greater  degree  of  care  is  required  of  the  safe  depositary 

who  stores  jewelry  and  valuables  than  is  required  of  a  cattle 

keeper.    So  the  exact  care  and  precaution  required  of  the  bailee 

depends  much  upon  the  circumstances  of  the  particular  case. 

A  bailee  who  stored  cotton  for  hire,  permitted  some  of  it  to  remain 
with  the  roping  off,  the  bagging  torn,  and  the  under  portion  in  water  so 
that  it  became  stained  and  much  was  damaged.  The  court  held  that  there 
was  a  want  of  ordinary  care  and  the  bailee  was  Hable. 

—  Morehead  v.  Brown,  51  N.  C.  367. 

When  the  bailee  is  to  perform  some  work  upon  the  chattel, 

he  must  exercise  such  skill  as  a  prudent  workman  of  the  same 

class  would  bestow  upon  a  similar  undertaking.     And  for  a 

failure  to  exercise  ordinary  skill  he  will  be  liable  as  for  a  lack 

of  ordinary  diligence. 

Meegan  took  Smith's  boat  to  make  certain  repairs  upon  it.  Held, 
that  he  was  bound  to  use  ordinary  diligence  in  the  care  of  the  boat  and  was 
liable  for  any  damages  to  it  occasioned  by  launching  it  into  the  river  at  a 
time  and  under  circumstances  of  great  danger  which  ought  to  have  been 
foreseen  and  which  resulted  in  the  destruction  of  the  boat. 

—  Smith  V.  Meegan,  22  Mo.  150. 

Thus  it  is  apparent  that  the  skill  required  in  different  cases 
varies  greatly  according  to  the  nature  of  the  work  required,  but 
in  all  cases  honesty  and  good  faith  are  required  of  the  bailee. 

Rights  of  the  Bailee.  —  The  bailee,  for  hire,  has  the  right 
to  the  undisturbed  possession  of  the  chattel  during  the  ac- 
complishment of  the  purposes  of  the  bailment,  and  when  the 
work  is  completed  he  has  the  right  to  demand  suitable  com- 
pensation. This  compensation  may  be  fixed  in  advance  or  left 
to  be  computed  later  on  a  basis  of  what  is  just  and  reasonable. 

Redelivery.  —  When  the  service  required  by  the  bailment 
has  been  completed,  it  is  the  bailee's  duty  to  deliver  the  chattel 
to  the  bailor,  and  it  is  the  duty  of  the  bailor  to  pay  the  com- 
pensation. The  delivery  back  must  be  to  the  bailor,  his  agent, 
or  to  his  order.  It  is  customary  for  warehousemen  who  conduct 
places  of  storage,  also  wharfingers  who  keep  wharves  on  which 
goods  are  received  and  shipped  for  hire,  to  give  to  the  bailor. 


214  BAILMENT 

or  owner  of  the  goods,  at  the  time  the  goods  are  delivered,  a 
receipt  known  as  a  warehouse  or  wharfinger's  receipt.  These 
receipts  are  generally  considered  as  representing  the  property 
itself  and  are  assignable  from  one  person  to  another,  and  the 
warehouseman  is  held  to  be  the  bailee  of  the  person  to  whom 
the  receipt  is  transferred. 

A  bill  of  lading  represents  the  property  for  which  it  is  given,  and  by 
its  indorsement,  or  delivery  without  indorsement,  the  property  in  the  goods 
may  be  transferred  where  such  is  the  intent  in  making  the  indorsement  or 
delivery.  —  Dodge  v.  Meyer,  6i  Calif.  405. 

Lien.  —  Although,  as  we  have  said,  it  is  the  duty  of  the 
bailee  to  deliver  back  the  chattel,  still  he  may  keep  possession 
until  he  is  paid  for  his  services  on  the  chattel  or  payment  has 
been  tendered  to  him.  This  right  is  called  a  lien  and  exists  in 
favor  of  any  bailee  who  has  performed  services  in  regard  to  the 
thing  bailed  such  as  repairing  it  or  storing  it. 

This  lien  holds  only  for  the  service  bestowed  upon  the  par- 
ticular chattel,  and  lasts  only  while  the  bailee  retains  possession. 

Bowers  had  a  truck  repaired  by  Andrews.  Andrews,  by  right  of  lien, 
may  retain  possession  of  the  truck  until  Bowers  pays  him  for  the  work 
done.    He  cannot,  however,  hold  the  truck  for  any  other  debt. 

•  Hired  Use  of  a  Chattel.  —  The  hiring  of  a  chattel  for  use  is 
frequently  illustrated  in  everyday  transactions,  as  in  the  hiring 
of  a  bicycle  or  a  rowboat.  After  the  contract  is  made  it  is  the 
bailor's  duty  to  deliver  the  chattel  and  to  allow  the  bailee  or 
hirer  to  have  possession  for  the  agreed  purpose  or  during  the 
stipulated  time. 

Buck  leased  Hickok  a  farm  for  one  year,  and  agreed  to  provide  a  horse 
for  Hickok  to  use  during  the  term.  He  furnished  a  horse  at  first,  but  took 
it  away  and  sold  it  before  the  expiration  of  the  term.  Held,  that  Hickok 
had  an  interest  in  the  horse  for  the  period,  and  could  recover  damages 
from  Buck  for  taking  it  away.  — Hickok  v.  Buck,  22  Vt.  149. 

It  is  the  bailee  or  hirer's  duty  to  use  the  chattel  with  care, 
and  for  no  other  purpose  than  that  for  which  it  was  hired.  He 
also  has  a  further  duty  to  return  it  at  the  termination  of  the 
bailment  and  to  pay  the  consideration  for  its  use.  As  in  other 
instances  of  a  mutual  benefit  bailment,  the  bailee  must  use  ordi- 
nary care  and  diligence.  This  is  the  rule  only  when  the  chattel 
is  used  as  agreed.    And  if  the  bailee  uses  the  hired  property  in 


BAILMENT  FOR  MUTUAL  BENEFIT  215 

a  way  materially  different  from  that  mutually  agreed  upon,  he 
is  in  most  instances  liable  absolutely  for  any  resulting  loss  or 
injury. 

Kyle  hired  a  horse  of  Fisher  to  drive  to  a  certain  place.  He  drove 
beyond  the  place  stated,  and  the  horse  fell  dead  while  being  driven.  Kyle 
was  held  liable  for  the  value  of  the  horse.  A  person  who  hires  a  horse  for 
a  specific  journey  and  drives  him  .beyond  that  journey  takes  upon  himself 
all  the  consequences  of  such  additional  drive,  and  if  the  horse  dies  while 
being  so  driven,  the  hirer  is  liable. — Fisher  v.  Kyle,  27  Mich.  454. 

Pledge  or  Pawn.  —  This  class  of  mutual  benefit  bailments 
consists  of  the  loan  or  deposit  of  a  chattel  as  security  for  some 
debt  or  agreement.  This  mode  of  securing  a  debt  differs  from 
a  chattel  mortgage  in  that  the  possession  is  transferred  in  the 
pledge,  while  in  the  case  of  a  chattel  mortgage  the  possession 
is  generally  retained  by  the  owner.  In  the  mortgage  the  title 
passes  conditionally  to  the  mortgagee,  while  in  a  pledge  it 
remains  in  the  bailor. 

Collateral  Security. — ^''Collateral  security"  is  another  term 
applied  to  this  class  of  bailments,  but  the  term  has  a  broader 
meaning  and  includes  chattel  mortgages  as  well.  The  name 
"  pawn  "  is  the  old  expression,  and  is  still  in  use  as  applied  to 
a  class  of  persons  called  pawnbrokers,  who  make  a  business  of 
loaning  money  on  articles  of  personal  property  deposited  with 
them.  But  the  same  object  is  accomplished  by  the  banker  who 
loans  money  and  accepts  as  collateral  security,  stocks,  ware- 
house receipts  of  grain,  bills  of  lading,  etc.  From  this  we  can 
see  that  the  subject  of  a  pledge  may  be  any  kind  of  personal 
property,  including  bills  and  notes,  certificates  of  stock,  bonds, 
and  bank  deposits.  But  the  thing  pledged  must  be  in  existence, 
for  if  it  has  ceased  to  exist,  the  pledge  is  void;  as  in  a  case 
where  the  chattel  has  been  burned  or,  if  an  animal,  it  is  dead. 

It  was  held,  that  the  giving  of  a  savings  bank  book  to  a  third  person 
for  delivery  to  a  creditor  as  security  for  a  debt  will  create  a  valid  pledge  of 
the  book  and  deposit.  —  Boynton  v.  Payrow,  67  Maine  587. 

The  pledgee  must  exercise  ordinary  care  and  diligence  to- 
ward the  thing  pledged,  and  when  the  property  is  delivered  as 
security  for  a  particular  loan,  it  cannot  be  held  as  security  for 
any  other. 


2i6  BAILMENT 

Baldwin  borrowed  $ioo  from  Bradley  and  pledged  with  him,  as  security 
for  this  loan,  one  $ioo  government  bond.  When  Baldwin  paid  the  $ioo 
Bradley  refused  to  return  the  bond  until  a  preexisting  debt  of  $50  was 
paid  by  Baldwin.  Bradley  has  no  right  to  hold  the  bond  for  any  other 
debt  than  the  one  for  which  it  was  given  as  security. 

The  bailee  must  keep  the  chattel  in  his  possession,  and  if  he 
voluntarily  surrenders  possession  to  the  owner,  the  benefit  of  the 
bailment  or  pledge  as  security  is  lost.  An  exception  is  the  re- 
delivery of  the  thing  pledged  to  the  bailor  for  some  temporary- 
purpose  and  with  the  understanding  that  the  pledgee  is  again  to 
have  possession,  in  which  case  the  security  is  not  lost. 

The  pledgee  has  the  right  to  use  the  chattel  pledged  if  it  is 
of  such  a  nature  that  it  requires  use;  for  instance,  a  horse  may 
be  driven  for  exercise.  But  if  the  article  pledged  would  be  the 
worse  for  usage,  then  the  pledgee  is  prohibited  from  using  it. 
All  profits  derived  from  the  article  pledged  belong  to  the  pledgor 
and  must  be  accounted  for  to  him,  but  all  necessary  expenses 
for  the  keeping  of  the  property  are  chargeable  to  the  owner. 

Unlike  other  bailments,  the  pledgee  may  assign  or  repledge 
his  interest  in  the  article  pledged,  but  only  subject  to  the  origi- 
nal pledge;  that  is,  the  original  pledgor  may  always  recover 
the  article  by  satisfying  the  terms  of  the  original  pledge. 

The  pledgee  has  a  right  to  the  undisturbed  possession  of  the 
chattel  pledged.  After  the  pledgor  has  made  default  in  paying 
the  debt  secured,  the  pledgee  may  sell  the  chattel,  after  giving 
the  pledgor  a  reasonable  notice  of  the  time  and  place  of  sale, 
which  notice  must  be  preceded  by  demand  of  payment.  The 
sale,  unless  the  pledgee  is  a  pawnbroker,  must  be  by  public 
auction,  and  the  goods  must  be  struck  off  to  the  highest  bidder. 

Sell  borrowed  $100  from  Ward  and  pledged  a  musical  instrument  and 
a  dress  suit  as  security.  Ward  accepted  a  note  for  the  loan,  which  was 
a  redemption  of  the  pledge  and  entitled  Sell  to  the  return  of  the  articles. 
The  instrument  was  returned,  but  the  suit  had  been  sold  by  Ward  and  the 
proceeds  credited  to  Sell.  This  action  was  to  recover  the  value  of  the  suit. 
It  was  held,  that  Ward  had  no  right  to  sell  the  suit  without  calling  upon 
Sell  to  redeem  and  giving  him  notice  of  the  time  and  place  of  sale.  This 
not  having  been  done,  the  sale  was  unlawful  and  Sell  was  entitled  to 
recover. — Sell  v.  Ward,  81  111.  Appeals  675. 

In  case  the  pledged  property  consists  of  notes,  bills,  or  bonds, 
which  will  soon  become  due,  the  proper  procedure  is  to  hold 


BAILMENT  FOR  MUTUAL  BENEFIT  217 

them  until  maturity  and  collect  them  if  possible,  applying  the 
proceeds  on  the  debt. 

A  pledge  of  commercial  paper  as  collateral  security  for  a  debt  does  not, 
in  the  absence  of  a  special  power  to  that  effect,  authorize  the  pledgee  to 
sell  the  security  so  pledged  either  at  public  or  private  sale  upon  default  of 
payment  of  the  original  debt  by  the  pledgor.  The  pledgee  is  bound  to  hold 
and  collect  the  same  as  it  becomes  due,  and  apply  the  net  proceeds  to  the 
payment  of  the  debt  so  secured.  —  Union  Trust  Co.  v.  Rigdon,  93  111.  458. 

The  pledgee  has  the  further  remedy  of  bringing  an  action  in 
the  equity  court  to  foreclose  his  claim  upon  the  article  pledged, 
and  when  large  amounts  are  involved,  this  is  a  frequent  pro- 
cedure. When  the  original  debt  has  been  discharged  without 
recourse  to  the  property  pledged,  the  pledgor  is  entitled  to  the 
return  of  his  chattels,  the  object  of  the  bailment  having  been 
accomplished.  But  before  the  pledgor  is  entitled  to  the  return 
of  the  chattels  pledged,  the  principal  debt  and  also  the  interest 
and  all  necessary  expenses  incidental  to  the  pledge  must  be 
paid.  A  tender  made  by  the  pledgor  to  terminate  the  pledge 
must  include  both  the  interest,  if  any,  and  all  such  necessary 
expenses. 

QUESTIONS 

1.  How  do  mutual  benefit  bailments  differ  from  other  bailments? 

2.  Name  three  classes  of  mutual  benefit  bailments  and  give  an  example 
of  each. 

3.  What  is  essential  in  a  mutual  benefit  bailment? 

4.  What  degree  of  care  is  the  bailee  expected  to  exercise? 

5.  What  degree  of  skill  must  the  bailee  exercise? 

6.  What  rights  has  the  bailee? 

7.  What  duty  is  imposed  on  the  bailee  with  reference  to  redelivery? 

8.  Explain  the  bailee's  right  of  lien. 

9.  What  are  the  rights  and  duties  of  a  bailee  who  hires  a  chattel  for  use? 

10.  What  is  a  pledge  or  pawn  bailment  and  wherem  does  it  differ 
Irom  a  chattel  mortgage? 

11.  Explain  the  meaning  of  the  term  "collateral  security." 

12.  May  pledged  securities  be  held  for  any  other  debt  than  the  one 
or  which  they  were  pledged? 

13.  Has  the  pledgee  a  right  to  use  the  thing  pledged?     Explain, 

14.  Has  the  pledgee  a  right  to  assign  or  repledge  his  interest  in  the 
'pledged  article?     Explain, 

15.  What  are  the  rights  of  the  pledgee? 

16.  What  remedy  has  the  pledgee  where  the  pledgor  does  not  fulfill 
his  contract? 


2i8  BAILMENT 

5.   INNKEEPERS 

Definition.  —  An  innkeeper  is  one  who  keeps  a  house,  or  inn, 
for  the  lodging  and  entertainment  of  travelers.  In  the  modern 
sense  he  is  a  hotel  keeper,  an  inn  being  the  same  as  our  hotel 
or  tavern.  The  innkeeper  or  hotel  keeper  differs  from  a  board- 
ing-house keeper  in  that  his  is  a  public  calling  and  he  is  required 
by  law  to  receive  and  give  accommodations  to  all  persons  of 
good  behavior  who  apply  and  offer  to  pay  for  their  accommo- 
dation, unless  his  house  is  full.  Boarding-house  keepers,  or 
restaurant  keepers,  can  receive  or  refuse  such  persons  as  they 
please. 

Guests.  —  The  relation  of  innkeeper  arises  only  with  refer- 
ence to  such  parties  as  are  his  guests,  a  guest  being  one  who  as  a 
transient  traveler  partakes  of  the  entertainment  of  the  inn  or 
hotel.  He  may  be  a  guest,  although  he  does  not  stay  over- 
night. 

A  person  receiving  a  gratuitous  accommodation  is  not  a 
guest.  To  create  the  relation  of  guest  the  innkeeper  must  receive 
pay  for  the  accommodation. 

Innkeeper's  Liability.  —  The  innkeeper  is  a  bailee  of  the 
property  and  baggage  of  the  guest,  and  this  includes  wearing 
apparel^  jewelry,  and  money. 

By  the  common  law  the  responsibility  of  the  innkeeper  as 
bailee  was  exceptionally  great.  He  was  in  most  cases  held  to 
be  an  insurer  of  the  goods  and  liable  if  they  were  lost,  even 
without  any  fault  on  his  part,  unless  the  loss  was  occasioned  by 
the  guest's  negligence  or  by  an  act  of  God,  —  flood,  Kghtning, 
etc. 

Hulett's  goods  were  destroyed  by  fire  while  he  was  a  guest  at  Swift's 
hotel.  The  cause  of  the  fire  was  unknown,  but  Hulett  was  free  from  negli- 
gence. Held,  that  the  innkeeper  was  liable.  An  innkeeper  is  an  insurer 
of  property  committed  to  his  custody  by  a  guest  unless  the  loss  be  due  to 
the  negligence  or  fraud  of  the  guest,  or  to  the  act  of  God  or  the  public 
enemy.  —  Hulett  v.  Swift,  2,3  N.  Y.  571. 

Other  cases  go  so  far  as  to  reHeve  the  innkeeper  from  Ha^ 
bility  in  case  of  loss  if  he  can  show  positively  that  he  was  in 
no  way  negligent,  but  this  is  a  modification  of  the  common  law 
rule. 


INNKEEPERS  219 

When  property  committed  to  the  custody  of  an  innkeeper  by  his  guest 
is  lost  the  presumption  is  that  the  innkeeper  is  liable  for  it,  but  he  can  re- 
lieve himself  from  that  liability  by  showing  that  he  has  used  extreme 
diligence.  —  Howth  v.  Franklin,  20  Tex.  798. 

The  innkeeper  is  responsible  for  the  acts  of  his  servants  and 

employees  the  same  as  for  his  own  acts. 

A  suit  was  brought  against  Proctor,  an  innkeeper,  for  a  coat  which  had 
been  left  by  Rockwell  who  was  a  guest  at  Proctor's  hotel.  The  coat  had 
been  given  to  a  negro  in  charge.  It  was  held  that  Proctor  was  liable  as  inn- 
keeper for  the  act  of  his  servant.  —  Rockwell  v.  Proctor,  39  Ga.  105. 

Therefore  the  innkeeper  is  liable  for  any  theft  of  the  guest's 
property,  and  he  is  not  excused  on  the  plea  that  he  selected  his 
servants  carefully  and  performed  his  own  duty  well. 

Limitation  of  Liability.  —  The  statutes  in  most  of  the  states 
now  allow  the  innkeeper  to  relieve  himself  from  the  extreme 
rigor  of  the  common  law,  permitting  him  to  limit  his  responsi- 
bility for  money  and  valuables  by  requiring  the  guest  to  deliver 
them  into  his  special  custody.  This  is  generally  done  by  re- 
quiring that  they  be  placed  in  the  innkeeper's  safe.  But  notice 
of  this  requirement  must  be  given  as  required  by  the  statute, 
or  the  common  law  liability  will  attach. 

Lang  went  to  the  Arcade  Hotel,  and  retained  in  his  own  possession 
money  and  jewelry,  although  the  innkeeper  had  provided  a  safe  for  the 
deposit  of  such  articles  and  had  posted  notices  of  the  privileges  as  required 
by  law.  Held,  the  hotel  was  not  liable  for  the  theft  of  the  money  and 
jewelry.  —  Lang  v.  Arcade  Hotel  Co.,  9  Ohio  372. 

Termination  of  Relation.  —  The  liability  of  the  innkeeper  for 
the  guest's  personal  property  exists  as  long  as  the  owner  of  the 
property  maintains  his  relation  as  guest  of  the  hotel  or  inn. 

Burckhardt  paid  his  bill  at  the  Brown  Hotel  so  as  to  cash  a  draft,  but 
it  was  understood  that  he. would  return,  meanwhile  retaining  his  rooms, 
and  he  gave  no  orders  for  the  removal  of  his  baggage.  During  his  absence 
his  trunks  were  moved  from  the  rooms  and  one  was  lost.  Held,  that  Burck- 
hardt was  still  a  guest  of  the  hotel  and  the  Brown  Hotel  Company  was 
liable  for  the  loss  of  the  trunk. 

—  Burckhardt  v.  Brown  Hotel  Co.,  13  Colo.  Appeals  59. 

But  after  the  relation  of  guest  has  ceased,  the  innkeeper  is 
liable  for  property  left  with  him  only  as  an  ordinary  bailee. 

Innkeeper's  Lien.  —  As  we  have  seen,  the  innkeeper  is  Com- 
pelled to  receive  any  proper  person  who  may  apply  for  accom- 


220  BAILMENT 

modations,  but  he  need  not  receive  those  who  cannot  pay,  and 
he  may  require  payment  to  be  made  in  advance. 

When  he  is  not  paid  in  advance,  the  law  gives  him  a  lien  for 
all  unpaid  charges  upon  the  property  which  the  guest  har. 
brought  into  the  house  and  placed  in  the  custody  of  the  inn- 
keeper or  bailee. 

The  innkeeper  can  detain  the  property  until  he  is  paid,  but 
if  he  voluntarily  surrenders  it,  the  lien  is  lost.  Statutes  in 
most  of  the  states  now  give  boarding-house  keepers  a  like  lien, 
but  by  common  law  it  extended  only  to  innkeepers. 

QUESTIONS 

1.  Who  is  an  innkeeper? 

2.  What  is  the  difference  between  an  innkeeper  and  a  boarding- 
house  keeper? 

3.  Who  is  a  guest?  i 

4.  What  is  the  difference  between  a  guest  and  a  boarder? 

5.  To  what  extent  is  an  innkeeper  liable  for  the  property  of  his  guest? 

6.  Are  there  any  circumstances  under  which  an  innkeeper  would  be 
relieved  from  liability  in  case  of  a  loss  of  his  guest's  property?    Explain. 

7.  Is  an  innkeeper  responsible  for  the  acts  of  his  servant?    Explain. 

8.  In  what  way  may  an  innkeeper  relieve  himself  from  liability? 
Explain. 

9.  Explain  the  innkeeper's  right  of  Hen. 

10.   When  is  the  relation  of  a  guest  of  a  hotel  said  to  be  terminated? 

6.   COMMON   CARRIERS 

Carriers  of  Goods.  —  A  carrier  of  goods  is  one  who  under- 
takes to  transport  personal  property  from  one  place  to  another. 
He  may  be  either  a  private  carrier  who  comes  under  the  class 
of  ordinary  bailees  or  a  common  carrier  who  is  subject  to  special 
rules.  A  common  carrier  is  one  whose  regular  calling  is  to 
transport  chattels  for  hire  for  all  who  may  choose  to  employ  him, 
while  a  private  carrier  is  one  who  transports  goods  gratuitously 
or  only  in  special  cases. 

A  carrier  may  be  one  who  operates  by  land  or  by  water,  the 
laws  regulating  their  liability  being  much  the  same.  Express, 
railrbad,  and  steamboat  companies  are  everyday  examples  of 
common  carriers.    In  order  to  constitute  one  a  common  carrier 


COMMON  CARRIERS  221 

two  things  are  necessary:  first,  a  continuous  offer  to  the  public 
to  carry,  and  second,  the  charge  of  a  compensation  for  the 
service. 

Goods  and  Payment  for  Carriage.  —  Common  carriers  are 
said  to  be  carriers  of  ''goods,"  and  this  term  includes  animals, 
money,  and  in  fact  any  article  of  personal  property  that  is 
subject  to  transportation.  Generally  speaking,  a  common 
carrier  is  bound  to  receive  whatever  may  be  offered  him  for 
transportation,  when  the  charges  are  paid  or  offered  to  be  paid. 
Payment  must  be  offered,  as  the  carrier  is  under  no  obHgation  to 
carry  free  or  upon  credit.  If  he  does  not  obtain  his  pay  upon 
receipt  of  the  goods,  he  may  hold  them  until  his  charges  are  paid, 
the  law  creating  a  lien  upon  the  goods  for  the  charges  and  expenses 
in  favor  of  the  common  carrier.  This  compensation  is  sometimes 
termed  "freight"  when  applied  to  the  charge  for  carrying  goods. 
After  the  goods  have  been  delivered  to  the  carrier  the  shipper 
cannot  retake  them  without  paying  the  freight,  and  if  they  are 
intercepted  before  reaching  their  destination,  the  full  freight 
can  be  recovered  by  the  carrier.  The  consignor  or  shipper  is 
the  party  primarily  liable  for  the  freight  and  not  the  consignee 
or  the  person  to  whom  the  goods  are  shipped,  unless  the  con- 
signee expressly  agrees  to  pay  it. 

Regulation  of  Charges.  —  Under  the  common  law  a  carrier 
could  charge  different  rates  to  different  shippers  for  the  same 
article,  provided  that  all  charges  must  be  reasonable.  Generally 
throughout  the  United  States,  statutes  have  provided  that 
uniform  rates  muSt  be  charged  and  have  created  Commissions 
which  must  fix  or  approve  all  rates. 

Right  to  Refuse  Goods.  —  As  we  have  said,  a  common 
carrier  is  generally  bound  to  receive  whatever  is  offered  to  him 
to  carry.  This  rule  is  subject  to  three  qualifications,  viz. :  first, 
the  carriage  of  the  chattel  must  be  for  hire;  second,  the  carriage 
must  be  within  the  carrier's  facilities  for  conveyance;  third,  the 
carriage  must  be  in  the  line  of  the  carrier's  vocation. 

We  have  already  discussed  the  first  qualification.  As  to  the 
second,  it  is  but  reasonable  that  the  carrier  may  refuse  to  re- 
ceive goods  when  he  has  not  sufiicient  room  or  adequate  facil- 
ities for  carrying  them  safely.     He  is  under  no  obligation  to 


222  BAILMENT 

furnish  extra  equipment  to  satisfy  an  unusual  demand.  So, 
if  the  article  carried  be  larger  or  heavier  than  the  carrier  can 
handle,  he  may  refuse  it  on  that  ground.  Furthermore,  he 
may  decline  to  receive  particular  property  which  may  at  the 
time  be  exposed  to  extraordinary  danger  or  hazard  on  his  route. 

The  fact  that  the  Illinois  Central  Railway  was  under  the  military  con- 
trol of  the  officers  of  the  United  States  Army  was  a  sufficient  excuse  for  the 
road  to  refuse  to  receive  freight  while  it  was  under  such  a  control,  it  not 
being  safe  for  the  road  to  undertake  the  carriage  of  freight. 

—  Phelps  V.  Illinois  Central  Railway,  94  111.  548. 

The  article  offered  for  transportation  may  not  be  in  the  line 
of  the  carrier's  vocation.  A  freight  carrier  may  not  necessarily 
hold  himself  out  to  carry  passengers.  He  need  carry  only  the 
class  of  goods  included  in  his  public  profession. 

This  was  an  action  for  damages  against  the  Midland  Railway  Co.  for 
refusing  to  transport  five  tons  of  coal.  The  railway  company  never  car- 
ried coal  and  did  not  hold  itself  out  for  any  such  business,  and  could  not, 
unless  it  gave  up  its  passenger  traffic.  Held,  that  a  common  carrier  is  not 
bound  to  carry  every  description  of  goods,  but  only  such  goods,  and  to  and 
from  such  places,  as  he  has  publicly  professed  to  carry,  and  for  which  pur- 
poses he  has  conveyances. 

—  Johnson  v.  The  Midland  Railway  Co.,  4  Exch.  (Eng.)  367. 

Interstate  Commerce  Act.  —  The  carrier  may  prescribe 
reasonable  rules  as  to  the  time  and  manner  of  receiving  goods. 
He  cannot  be  required  to  receive  them  at  an  unreasonable  hour 
or  place,  and  he  may  insist  that  the  goods  be  packed  in  a  reason- 
able way.  By  statutes  passed  in  most  of  the  states  the  carrier 
is  prohibited  from  discriminating  in  favor  of  one  customer  over 
another  either  in  rates  or  privileges  of  any  kind.  The  common 
carrier  must  not  select  his  patrons  arbitrarily,  but  must  furnish 
equal  facilities  to  all. 

To  further  this  object  a  statute  was  passed  by  the  Congress 
of  the  United  States  in  1887  which  is  known  as  the  Interstate 
Commerce  Act.  This  law  was  designed  to  regulate  the  com- 
merce between  the  states  and  applies  to  all  common  carriers, 
either  by  land  or  water,  who  transport  persons  or  property 
from  one  state  to  another  or  between  the  United  States  and 
foreign  countries.  It  provides  that  no  discrimination  shall  be 
made  between  large  or  small,  constant  or  occasional,  shippers, 
and  that  no  charges  shall  be  unjust  or  unreasonable.     It  also 


LIABILITY  OF  COMMON  CARRIERS  223 

provides  that  proportionate  charges  shall  be  made  for  long  and 
short  distances.  The  law  further  requires  that  the  schedule  of 
rates  shall  be  published  and  filed  with  commissioners  who  aire 
appointed  to  oversee  the  enforcement  of  the  law  and  are  known 
as  the  Interstate  Commerce  Commission.  The  law  also  makes 
it  unlawful  for  any  common  carrier  who  comes  under  its  pro- 
visions to  enter  into  any  combination  or  agreement  by  which 
the  continuous  carriage  of  freight  from  one  point  to  another 
shall  be  delayed  or  interrupted. 

All  of  the  large  railroad  and  express  companies  come  within 
the  provisions  of  this  law. 

QUESTIONS 

1.  Who  is  a  common  carrier  of  goods? 

2.  What  is  the  difference  between  a  common  carrier  and  a  private 
carrier? 

3.  Give  some  examples  of  common  carriers. 

4.  What  is  necessary  to  constitute  one  a  common  carrier? 

5.  What  does  the  term  "  goods  "  as  applied  to  common  carriers  include? 

6.  What  are  the  rules  governing  the  carriage  of  goods? 

7.  How.  are  charges  usually  regulated?    Explain. 

8.  Under  what  conditions  has  a  common  carrier  a  right  to  refuse 
goods? 

9.  What  is  the  purpose  of  the  Interstate  Commerce  Act? 

10.  What  are  the  main  provisions  of  this  law? 

11.  What  carriers  are  subject  to  the  provisions  of  this  law? 


7.  LIABILITY  OF   COMMON   CARRIERS 

When  Liability  Begins.  —  The  common  carrier  becomes  re- 
sponsible for  the  goods  when  they  are  delivered  to  him  for 
carriage  and  accepted  by  him  in  the  capacity  of  a  carrier.  The 
delivery  should  be  made  to  the  agent  or  person  whose  business 
it  is  to  receive  freight,  not  to  any  one  who  may  be  about  the 
place  of  delivery. 

In  the  case  of  expressmen  and  other  carriers  who  go  after  the 
goods  and  receive  them  at  the  shipper's  residence  or  place  of 
business,  their  liabihty  begins  when  they  receive  the  goods. 

Receipts.  —  It  is  always  prudent  for  the  shipper  or  sender 
of  the  goods  to  demand  of  the  carrier  a  receipt  for  the  articles 


224  •  BAILMENT 

delivered.  This  is  termed  a  freight  receipt  or  bill  of  lading. 
Originally  a  bill  of  lading  was  given  only  by  a  carrier  by  water, 
but  it  is  now  given  by  all  carriers.  It  consists  of  a  writing 
showing  the  receipt  of  the  goods  and  the  terms  of  the  contract 
of  carriage  in  brief  form. 

Limits  of  Liability.  —  As  in  the  case  of  the  innkeeper,  the 
liability  of  the  common  carrier  is  exceptionally  great.  He  is 
held  liable  as  an  insurer  of  the  goods  against  all  risks  of  loss  or 
injury,  except  when  the  loss  arises  from  the  following  causes: 
(i)  by  an  act  of  God,  or  by  a  public  enemy,  (2)  by  the  act  of  the 
shipper,  (3)  by  the  act  of  the  public  authority,  (4)  from  the 
nature  of  the  goods.  In  the  early  times  this  strict  measure  of 
responsibility  was  placed  upon  the  carrier  for  reasons  of  public 
policy.  In  an  age  of  thieving  and  lawlessness  the  carrier  had 
many  opportunities  to  defraud  his  customers,  and,  by  collusion 
with  thieves  and  robbers,  to  cause  the  shipper  to  be  defrauded. 
To  this  absolute  liability  as  an  insurer  there  were  only  two 
exceptions  under  the  common  law,  and  these  were  losses  occa- 
sioned either  by  act  of  God  or  the  king's  enemies.  But  modern 
methods  make  the-  reason  for  the  rule  less  urgent,  and  modern 
legislation  has  relieved  the  carrier's  liability  in  the  other  cases 
just  specified. 

Loss  or  Injury  by  Act  of  God.  —  This  includes  those  causes 
which  man  neither  produced  nor  can  contend  against;  as,  acci- 
dents caused  to  the  goods  while  the  carrier  is  within  the  line  of 
duty,  by  lightning,  tempest,  earthquake,  flood,  sudden  death, 
snow,  rough  winds,  freezing,  and  thawing. 

It  was  held  that  an  injury  to  property  in  transit,  caused  by  an  earth- 
quake, was  the  result  of  an  act  of  God  and  the  So.  Carolina  Ry.  Co.  was  not 
liable  for  the  injury.  —  Slater  v.  So.  Carolina  Ry.  Co.,  29  S.  C.  96. 

But  a  prudent  man  will  foresee  the  less  violent  of  these 
causes,  such  as  snow  and  freezing,  and  a  carrier  will  not  be 
excused  for  loss  in  such  cases,  unless  he  has  exercised  prudence 
and  foresight  in  regard  to  them. 

Fruit  trees  shipped  on  the  Pacific  R.R.  were  frozen  while  en  route,  and 
the  freezing  was  held  to  be  an  act  of  God  for  which  the  company  was  not 
liable,  unless  caused  by  unnecessary  delay  in  transporting  the  trees  or  by 
their  careless  exposure  to  the  cold.  —  Vail  v.  Pacific  Railroad,  63  Mo.  230. 


LIABILITY  OF  COMMON  CARRIERS  225 

Loss  by  Fire.  —  Loss  by  fire,  unless  caused  by  lightning,  is 

not  an  act  of  God  and  a  common  carrier  is  not  excused  from 

loss  by  this  cause  unless  it  is  expressly  contracted  for. 

Unless  a  carrier  limits  his  responsibility  by  the  terms  of  a  bill  of  ladin^'j 
or  otherwise,  he  cannot  escape  the  obligation  to  deliver  the  goods  at  their 
destination  unless  prevented  by  the  public  enemy  or  by  an  act  of  God. 
A  loss  by  accidental  fire  is  not  a  sufficient  excuse  unless  the  fire  be  caused 
by  lightning.  —  Parker  v.  Flagg,  26  Maine  181. 

Loss  or  Injury  by  Public  Enemies.  —  This  is  a  loss  caused  by 

those  at  war  with  one's  country. 

Wood  contracted  with  McCranie,  a  carrier  by  boat,  to  remove  certain 
cotton  belonging  to  McCranie  to  places  deemed  safe  from  hostiUties  during 
the  Civil  War.  It  was  stored  where  it  was  deemed  safe,  but  hostilities  arose 
there  and  the  cotton  was  destroyed.  Held,  that  Wood  had  performed,  3,3 
far  as  was  in  his  power,  and  the  goods  having  been  destroyed  by  the  pubUc 
enemy,  he  was  not  liable.  —  McCranie  v.  Woods,  24  La.  Annual  406. 

But  the  violence  of  mobs  or  rioters  does  not  bring  the  par- 
ticipants within  the  term  "  public  enemies." 

Loss  or  Injury  by  Act  or  Fault  of  the  Consignor.  —  This 
cirises  when  the  shipper  carelessly  packs  the  goods  and  they  are 
injured,  or  when  he  incorrectly  addresses  them  so  that  they 
are  delayed  or  lost,  in  which  cases  the  carrier  is  not  liable. 

Klauber  shipped  some  clothing  which  was  not  entirely  covered  and 
while  being  transported  by  the  American  Express  Company  was  damaged 
by  rain.  Held,  that  the  owner  is  not  required  to  cover  goods  shipped  so 
that  they  shall  be  safe  from  rain,  mud,  and  fire,  and  the  Express  Company 
here  is  liable.  If  there  had  been  a  hidden  defect  in  the  packing  from  which 
damage  resulted  in  the  ordinary  course  of  handling,  it  would  have  been  the 
act  of  the  owner  and  the  carrier  would  have  been  relieved. 

—  Klauber  v.  American  Express  Co.,  21  Wis.  21. 

Congar  shipped  via  Chicago  R.R.,  trees  and  other  nursery  stock  from 
Whitewater,  Wis.,  directed  to  "luka,  la."  The  consignee  was  a  resident 
of  luka,  Tama  Co.,  la.  The  defendant  took  them  to  luka,  Keokuk  Co.,  la., 
in  consequence  of  which  delay  the  stock  became  worthless.  Chicago 
Railway  Co.  proved  that  they  examined  the  maps  and  found  the  place 
in  Keokuk  Co.  Held,  that  the  company  was  not  responsible.  The  negli- 
gence, if  any,  was  upon  the  part  of  Congar  in  not  marking  the  goods  with 
the  name  of  the  county  or  the  road  by  which  they  were  to  go. 

—  Congar  v.  Chicago  Railway  Co.,  24  Wis.  157. 

Any  deception  or  bad  faith  on  the  part  of  the  shipper  as  to 
the  article  shipped,  whereby  it  is  made  to  appear  less  valuable 
or  less  liable  to  be  injured,  will  relieve  the  carrier  from  responsi- 
bility for  any  injury. 


226  BAILMENT 

An  action  was  brought  against  the  American  Express  Company  to  re- 
cover for  the  value  of  .a  package  containing  a  wreath,  made  partially  of 
glass,  which  was  broken.  The  company  was  not  informed  of  the  fragile 
nature  of  the  goods  shipped.  Held,  that  in  order  to  charge  a  common 
carrier  as  insurer  he  must  be  treated  in  good  faith,  and  concealment  or 
suppression  of  the  truth  will  relieve  him  from  liability. 

—  Perkins  v.  American  Express  Co.,  42  111.  458. 

Loss  or  Injury  Arising  from  the  Nature  of  the  Goods.  — 
When  the  loss  arises,  not  from  any  act  of  the  carrier,  but  be- 
cause of  the  inherent  nature  of  the  goods,  the  carrier  is  relieved. 
This  applies  to  the  natural  decay  of  vegetables  and  fruit  and 
other  perishable  commodities,  also  to  the  loss  of  live  stock  aris- 
ing from  their  own  viciousness  and  habits-,  as  when  cattle  gore 
or  trample  upon  each  other.  But  the  carrier  must  take  such 
care  of  live  stock  as  prudence  and  foresight  demand,  and  must 
feed  and  water  them,  unless  the  shipper  undertakes  this  duty. 

Cooper  tried  to  recover  damages  for  live  stock  shipped  over  the 
Raleigh  &  Gaston  R.R.  It  was  held  that  the  strict  common  law  rule  as 
to  the  liabilities  of  carriers  has  been  modified  in  favor  of  carriers  of  live 
stock,  on  account  of  the  nature  of  the  goods,  and  where  the  damage  arose 
from  the  natural  death  of  the  animals  or  from  their  viciousness,  and  could 
not  be  prevented  by  foresight,  vigilance,  and  care,  the  carrier  is  not 
liable.  —  Cooper  v.  Raleigh  b'  Gaston  R.R.  Co.,  no  Ga.  659. 

A  cargo  of  oranges  and  lemons  was  shipped  from  Italy  to  New  York. 
On  the  voyage  the  vessel  was  damaged  by  storm  and  put  into  port  for  re- 
pairs; by  reason  of  the  delay  some  of  the  fruit  decayed.  It  was  held  that 
there  could  be  no  recovery  for  damages  arising  from  the  inherent  nature 
of  the  cargo,  even  though  caused  by  the  delay,  unless  there  was  some  fault, 
misbehavior,  or  negligence  of  the  master  or  crew  contributing  to  the  damage. 

— The  Brig  Collenberg,  66  U.  S.  170. 

Loss  or  Injury  Caused  by  Public  Authority.  —  An  example 
of  such  -a  loss  is  a  seizure  of  the  goods  by  process  of  law,  or  by 
the  direct  act  of  one's  own  government. 

In  an  action  against  a  railroad  company  for  failure  to  deliver  wheat 
shipped,  the  answer  was  that  while  the  wheat  was  being  shipped,  one  John- 
son took  out  a  writ  of  replevin,  and  by  virtue  of  this  writ  the  sheriff  of  the 
county  seized  the  grain  and  took  it  out  of  the  possession  of  the  company. 
Held,  that  the  common  carrier  is  excused  from  liability  when  the  goods  are 
seized  by  virtue  of  a  legal  process  and  taken  out  of  his  hands. 

—  Yohe  V.  Ohio  Railway  Co.,  51  Ind.  181. 

Limitation  of  Liability  by  Contract.  —  The  carrier  in  most 
of  the  states  may  Hmit  his  liability  to  a  certain  extent  by  con- 
tract with  the  shipper.    That  is,  by  special  agreement  a  lighter 


LIABILITY  OF  COMMON  CARRIERS  227 

degree  of  responsibility  may  be  stipulated  for.  He  may  stipu- 
late not  to  be  liable  for  loss  by  fire,  robbery,  accidental  delay,  or 
dangers  from  navigation,  provided  he  is  not  himself  in  fault; 
but  he  cannot  contract  away  his  liability  for  the  fraud,  mis- 
conduct, or  negligence  of  himself,  his  agents,  or  servants.  Not- 
withstanding his  attempt  by  contract  to  limit  his  liability,  he 
will  stil  be  held  to  the  responsibility  of  a  mutxial  benefit  bailee, 
and  he  is  required  to  exercise  ordinary  care  and  diligence,  as 
well  as  honesty  and  good  faith. 

The  bill  of  lading  given  by  the  Hartford  Steamboat  Co.  when  the  goods 
were  shipped  provided  that  the  company  should  not  be  responsible  for 
damage  to  the  goods  from  any  perils  or  accidents  not  resulting  from  their 
own  negligence  or  that  of  their  servants.  Held,  that  the  exemption  stipu- 
lated for  was  valid  and  lawful  and  the  carrier  was  not  liable  for  loss  caused 
by  the  boat  running  upon  a  rock. 

—  Camp  V.  Hartford  Steamboat  Co.,  43  Conn.  333. 

The  carrier  is  also  allowed  to  state  a  reasonable  limit  to  the 
amount  for  which  he  shall  be  held  liable  in  case  of  loss,  imless 
the  shipper  shall  state  the  valuation  at  the  time  of  the  delivery 
of  the  goods  to  the  carrier.  Express  companies  generally  con- 
tract that  in  case  no  valuation  is  given,  they  will  not  be  liable 
for  a  sum  to  exceed  $50,  and  such  a  provision  is  generally  up- 
held. 

Durgin  shipped  goods  by  American  Express  Company  and  received 
a  receipt  stating  that  the  goods  were  of  the  value  of  $50  and  the  company 
should  not  be  liable  for  a  greater  amount,  unless  the  value  was  stated  in 
the  receipt.  No  such  value  was  stated.  The  goods  were  lost.  It  was  held 
that  the  shipper  was  bound  by  thp  terms  of  the  receipt,  although  the  value 
of  the  goods  was  more  than  $50. 

—  Durgin  v.  American  Exp.  Co.,  66  N.  H.  277. 

Delivery  by  Carrier.  —  The  carrier  is  bound  to  transport  the 
goods  with  reasonable  dispatch,  and  by  the  prescribed  or  cus- 
tomary route,  and  at  the  termination  of  the  journey  to  deliver 
them  over  to  the  consignee  or  his  authorized  agent  within  a 
reasonable  time. 

A  stipulation  in  the  bill  of  lading  exempting  the  company  from  liability 
for  loss  arising  from  delay  for  any  cause,  is  unreasonable,  and  will  not 
relieve,  the  carrier  from  liability  for  losses  caused  by  negligence. 

—  Berje  v.  Railway  Co.,  37  La.  Annual  468. 

The  carrier  is  liable  absolutely  to  deliver  to  the  right  party. 
If  he  delivers  to  the  wrong  party,  no  matter  how  cautiously  and 


228  BAILMENT 

innocently,  he  is  liable.    Delivery  on  a  forged  order  or  through 

the  fraud  of  a  stranger  will  not  relieve  him. 

Glidewell  sued  the  LitUe  Rock,  M.  R.  &  T.  Ry.  Co.  for  the  loss  of  goods. 
The  railway  company  received  the  goods,  but  by  mistake  of  the  conductor 
they  were  delivered  to  a  stranger  and  were  lost.  Held,  the  company  was 
Uable  for  the  value  of  the  goods.  A  carrier  is  liable  for  goods  lost  by  mis- 
delivery, whether  made  through  mistake  or  by  fraud  or  impositions  prac- 
ticed on  it.  —  Little  ^ock,  M.  R.  b'  T.  Ry.  Co.  v.  Glidewell,  39  Ark.  487. 

When  the  carriage  is  by  water  a  delivery  on  the  usual  wharf 
is  sufhc'ent,  but  while  on  the  wharf,  goods  should  be  handled 
with  reasonable  care.  A  railroad  company  may  deliver  the 
goods  at  the  depot  or  freight  house,  and  according  to  the  laws 
of  many  states,  must  also  notify  the  consignee,  and  is  liable  as  a 
common  carrier  until  the  consignee  has  had  a  reasonable  oppor- 
tunity to  remove  the  goods. 

Other  states  hold  that  the  delivery  and  safe  storage  of  the 
goods  in  the  freight  depot  relieve  the  carrier  from  further  lia- 
bility other  than  as  a  warehouseman. 

If  such  carriers  as  express  companies  in  the  cities,  whose 
custom  it  is  to  deliver  to  the  consignee  at  his  residence  or  place 
of  business,  deliver  at  any  other  place  or  store  the  goods  in 
the  depot  as  is  practiced  by  freight  companies,  such  delivery 
will  not  be  sufficient.  This  rule  applies  also  to  draymen  and 
teamsters. 

QUESTIONS 

1.  When  does  a  common  carrier's  liability  begin? 

2.  Why  is  it  advisable  for  the  shipper  to  demand  a  receipt  of  the 
carrier?     Explain. 

3.  What  is  the  liability  of  a  common  carrier  of  goods? 

4.  Mention  four  causes  of  loss  for  which  a  carrier  will  not  be  liable. 

5.  What  causes  of  loss  are  included  under  acts  of  God?  Explain. 

6.  Are  there  any  exceptions  to  the  rule  that  the  carrier  is  not  liable 
for  loss  caused  by  acts  of  God? 

7.  Is  a  carrier  liable  for  loss  caused  by  fire?    Explain. 

8.  Is  a  carrier  liable  for  loss  resulting  from  strikes?    Explain. 

9.  Under  what  circumstances  is  tKe  shipper  liable  for  loss? 

10.  Who  is  liable  where  loss  results  from  the  nature  of  the  goods? 
Explain. 

11.  Has  a  carrier  a  right  to  limit  his  liability  by  contract?     Explain. 

12.  What  are  the  duties  of  a  common  carrier  with  reference  to  de- 
livery?   Explain. 


CARRIERS  OF  PASSENGERS  i2g 

8.  CARRIERS  OF  PASSENGERS  \ 

Definition.  —  A  common  carrier  of  passengers  is  one  who 
transports  persons  from  one  place  to  another  for  hire.    A  pub- 
lic carrier  may  be  both  a  carrier  of  goods  and  of  passengers.      \ 
The  passenger  may  be  carried  by  .water  or  by  land.    The  com-      I 
mon  carrier  of  passengers  is  bound  to  receive  and  carry  all  persons      ; 
who  shall  .apply  and  are  ready  and  willing  to  pay  for  their 
transportation. 

Rights  and  Duties.  —  A  carrier  may  refuse  to  carry  when  j 
he  has  no  more  room  or  when  the  party  applying  is  not  a  suit- 
able person.  He  need  not  receive  a  drunken  person,  a  noto- 
rious criminal,  or  a  person  infected  with  a  contagious  disease. 
Neither  is  he  obliged  to  take  persons  to  a  place  which  is  not  on 
his  route,  or  at  which  he  is  not  accustomed  to  stop. 

It  was  held,  that  where  an  unattended  passenger  becomes  sick  or  un- 
conscious or  insane  after  entering  upon  a  journey,  it  is  the  duty  of  the       ; 
company  to  remove  him  from  the  train  and  leave  him  until  he  is  in  a  fit 
condition  to  resume  his  journey. 

—  Atchison  Railroad  Co.  v.  Weber,  ^s  Kans.  543. 

The  fare  required  of  the  passenger  must  be  reasonable,  and 
in  many  states  it  is  regulated  by  statute.    The  carrier  is  bound 
to  have  means  and  appliances  suitable  to  the  transportation,      ; 
and  to  use  all  reasonable  precautions  for  the  safety  of  passengers. 
He  can  prescribe  reasonable  rules  as  to  showing  tickets,  etc. 
The  carrier  is  not  an  insurer  of  the  lives  and  safety  of  the  pas-      i 
sengers,  but  he  is  held  to  a  high  degree  of  care,  and  will  be  liable      ; 
for  even  slight  negligence.    While  the  carrier  does  not  warrant      i 
the  safety  of  the  passengers,  he  is  held  to  the  highest  degree  of      ] 
care  practicable  under  the  circumstances.  i 

A  passenger  was  injured  because  the  carrier  did  not  allow  her  a  reason- 
able time  to  alight  from  the  train,  but  started  it  suddenly  whereby  she  ; 
was  thrown  to  the  ground.  Held,  that  a  carrier  is  not  an  insurer  of  the 
safety  of  passengers,  but  is  required  to  exercise  the  highest  degree  of  care, 
foresight,  prudence,  and  diligence  demanded  by  the  conditions,  such  rule 
being  for  the  purpose  of  stimulating  efficiency  in  the  carrier  and  in  the 
interest  of  humanity  and  the  general  welfare.  In  this  case  the  carrier  was  i 
held  liable  for  the  injuries.  —  Florida  Ry.  Co.  v.  Dorsey,  59  Fla.  260.  \ 

In  most  of  the  states  the  carrier  is  not  permitted  to  limit      j 
his  liability  for  injury  to  the  passenger.     It  is  considered  con-      i 


2^0  BAILMENT 

trary  to  public  policy  to  exempt  the  carrier  from  liability  for 
even  slight  negligence  when  the  lives  and  safety  of  human  beings 
are  concerned. 

Baggage.  —  The  passenger  who  pays  his  fare  to  the  carrier 
is  entitled  to  have  certain  baggage  taken  without  charge,  and 
for  this  baggage  the  carrier  is  liable  as  for  the  carriage  of 
freight.  Baggage  in  this  sense  includes  such  articles  of  per- 
sonal necessity,  convenience,  and  comfort  as  travelers  under  the 
circumstances  are  wont  to  take  on  their  journeys.  It  does  not 
include  merchandise  or  a  stock  of  goods  used  in  the  traveler's 
business. 

Courson  sued  for  the  loss  of  certain  quilts,  pillows,  pillow  cases,  sheets, 
etc.,  contained  in  his  trunk  carried  on  the  Central  of  Ga.  Ry.  Co.'s  rail- 
road, and  intended  for  his  use  in  housekeeping  when  he  reached  home. 
It  was  held  that  a  carrier's  liability  for  baggage  is  confined  to  such  ar- 
ticles of  personal  convenience  and  adornment  as  are  usually  taken  by  a 
passenger  on  a  journey  and  does  not  extend  to  articles  intended  for  house- 
keeping. —  Courson  v.  Central  of  Ga.  Ry.  Co.,  lo  Ala.  Appeals  581. 

A  carrier  was  held  not  liable  for  delay  in  the  delivery  of  a  sample 
trunk  containing  photographs  of  articles  of  furniture  which  McElroy  was 
engaged  in  selling  as  a  commercial  traveler,  such  articles  not  being  in- 
cluded in  the  term  "baggage." 

—  McElroy  v.  Iowa  Cent.  Ry.  Co.,  133  Iowa  544. 

The  carrier  is  also  liable  for  money  which  the  passenger 

includes  in  his  baggage  for  his  traveling  expenses  and  personal 

use,  not  exceeding  a  reasonable  amount. 

A  passenger  is  entitled  to  carry  sufficient  money  and  personal  effects 
as  baggage  to  reasonably  supply  his  wants  for  the  entire  journey,  and  the 
carrier  is  liable  for  their  loss.  —  Godfrey  v.  Pullman  Co.,  87  S.  C.  361. 

If  the  baggage  is  not  delivered  into  the  actual  custody  and 

keeping  of  the  carrier,  but  is  retained  in  the  possession  of  the 

passenger,  the  carrier  is  under  no  such  liability  for  its  safety. 

A  carrier's  liability  for  baggage  does  not  commence  until  the  actual 
delivery  of  the  baggage  to  the  carrier,  and  therefore  a  carrier  was  not 
liable  for  loss  of  a  trunk  for  which  a  check  or  receipt  had  been  issued,  but 
which  actually  was  in  the  passenger's  private  dwelling. 

—  Hosking  V.  Southern  Pac.  Co.,  148  111.  Appeals  11. 

The  carrier  may  by  special  contract  make  reasonable  modifi- 
cations of  his  liability  for  baggage.  But  the  carrier  cannot 
relieve  himself  wholly  from  liability,  and  the  limitation  must  be 
brought  to  the  passenger's  notice  and  must  be  reasonable.    Con- 


CARRIERS  OF  PASSENGERS  231 

ditions  limiting  the  carrier's  liability  to  each  passenger  to  a 
given  amount  have  been  upheld. 

A  railroad  company  cannot  limit  its  liability  for  the  safe  carriage  of 
a  passenger's  baggage  by  a  notice  printed  upon  the  face  of  a  ticket,  unless 
the  passenger's  attention  is  called  to  it  when  purchasing  the  ticket,  or  un- 
less the  circumstances  are  such  that  it  would  be  negligent  of  him  not  to 
read  it.  The  clause  in  the  ticket  was  that  the  company  would  not  be  Hable 
for  lost  baggage  excepting  wearing  apparel,  and  then  only  for  a  sum  not  to 
exceed  $50.  —  Mauritz  v.  Railroad  Co.,  23  Fed.  Rep.  (U.  S.)  765. 

The  liability  of  the  carrier  for  the  baggage  does  not  terminate 
until  the  passenger  has  had  reasonable  opportunity  to  take 
charge  of  it  after  it  has  reached  its  destination.  If  it  is  not 
claimed  after  a  reasonable  time,  the  carrier  may  store  it,  and  his 
liability  as  a  carrier  ceases,  he  being  liable  thereafter  only  as  a 
warehouseman. 

Jones  delivered  his  trunk  to  the  Central  of  Ga.  Ry.  Co.  for  transporta- 
tion. After  its  arrival  it  was  taken  from  the  railroad  station  by  somebody 
other  than  Jones  and  lost.  Held,  that  Jones's  failure  to  take  the  trunk  away 
within  a  reasonable  time  after  its  arrival  terminated  the  Central  of  Ga. 
Ry.  Co.'s  liabihty  as  carrier,  but  its  liabiHty  as  warehouseman  remained; 
and  the  trunk  having  been  lost  by  the  negligence  of  the  station  agent, 
the  Central  of  Ga.  Ry.  Co.  was  liable. 

—  Jones  V.  Central  of  Ga.  Ry.  Co.,  150  Ala.  379. 


QUESTIONS 

1.  Who  is  a  common  carrier  of  passengers? 

2.  What  are  the  rights  of  a  common  carrier  of  passengers? 

3.  What  are  the  duties  of  a  common  carrier  of  passengers? 

■  4.  What  degree  of  care  is  required  of  a  common  carrier  of  passengers? 

5.  To  what  extent  is  a  common  carrier  of  passengers  Hable  for  their 
safety? 

6.  Has  a  carrier  of  passengers  a  right  to  limit  his  liability?     Ex- 
plain. 

7.  What  are  the  rights  of  a  passenger  with  reference  to  baggage? 
Explain. 

8.  What  does  the  term  "  baggage  "  include? 

9.  What  is  the  HabiHty  of  a  carrier  for  baggage? 

10.  In  what  way  may  a  carrier  limit  his  liability  for  baggage?     Ex- 
plain. 

11.  Is  the  carrier  liable  for  money  which  a  passenger  has  in  his  baggage? 
Explain. 

12.  When  does  a  carrier's  Hability  for  baggage  terminate?^  Explain 
in  full. 


232  BAILMENT 


IMPORTANT   POINTS 


A  bailment  is  a  delivery  of  goods  by  one  party  to  another,  without 
change  of  ownership,  for  a  specific  purpose. 

A  bailment  is  created  by  contract  and  is  subject  to  the  same  rules 
of  law  as  a  contract. 

No  one  can  be  made  a  bailee  without  his  consent,  express  or 
implied. 

Only  personal  property  can  be  the  subject  matter  of  a  bailment. 

The  two  general  classes  of  bailments  are  gratuitous  and  for  hire. 

The  three  degrees  of  care  required  are  slight,  ordinary,  and  great. 

Negligence  is  a  breach  of  duty  to  exercise  the  required  degree 
of  care. 

The  skill  required  of  the  bailee  who  attempts  to  do  a  piece  of  work 
is  that  which  a  workman  doing  such  work  should  possess,  and  the 
degree  of  skill  depends  on  the  nature  of  the  work. 

A  bailee  who  deviates  from  the  original  purpose  of  the  bailment 
is  liable  for  all  losses. 

In  a  bailment  for  the  bailor's  sole  benefit,  the  bailee  is  entitled 
to  be  reimbursed  for  any  expense  in  connection  with  the  thing  bailed. 

Bailments  for  hire  include  the  hiring  of  care  and  custody,  hiring 
the  use  of  a  thing,  the  hiring  of  labor,  and  the  hiring  of  carriage. 

The  bailee  has  a  lien  on  property  on  which  he  has  bestowed 
services  that  have  not  been  paid  for. 

The  bailee  is  not  responsible  for  loss  caused  by  an  inevitable 
accident. 

An  inn  or  hotel  is  a  public  place  for  the  entertainment  of  transient 
guests. 

The  liability  of  the  innkeeper  is  said  to  be  extraordinary. 

Steamship  and  sleeping  car  companies  are  not  innkeepers. 

A  common  carrier  is  one  who  makes  a  business  of  carrying  goods 
or  passengers. 

The  business  of  common  carriers  is,  for  the  most  part,  regulated 
by  statute. 

A  common  carrier  has  the  right  of  lien  on  the  goods  carried  to 
secure  the  payment  of  charges. 

A  carrier  of  goods  has  a  right  to  limit  the  amount  for  which  he 
shall  be  liable  in  case  of  loss. 

A  carrier  may  refuse  to  carry  any  one  who  refuses  to  pay  the  fare 
in  advance  or  who  does  not  conduct  himself  properly. 

TEST    QUESTIONS 

I.  Earth,  a  friend  of  Edwards,  agreed  to  keep  Edwards's  motor- 
cycle for  him  while  he  was  away  on  his  vacation.  Earth  rode  the  motor- 
cycle to  a  ball  game  and  it  was  stolen.    Is  he  responsible?    Explain. 


CASE  PROBLEMS  233 

2.  In  case  goods  are  burned  up  while  in  transit  and  no  carelessness 
on  the  part  of  the  railroad  company  can  be  proved,  does  the  loss  fall  on  the 
railroad  company?     Explain. 

3.  Can  a  person  who  has  stolen  goods  ever  become  a  bailor  of  the 
goods  stolen? 

4.  Goods  consigned  to  Hall  were  lost  through  acts  of  a  mob  of  strikers. 
Would  the  carri^  be  liable? 

5.  Would  the  carrier  be  Hable  if  goods  were  lost  through  acts  of  an 
army  while  the  country  was  at  war? 

6.  A  railroad  company's  receipt  stated  that  it  would  not  be  Kable 
for  accidents  of  any  kind  that  might  cause  loss.  Has  the  company  a  right 
to  limit  its  liabilities  in  this  way? 

7.  Brown,  a  respectable  person,  applied  to  the  Pennsylvania  Rail- 
road Company  for  transportation  on  one  of  their  passenger  trains,  offering 
to  pay  the  usual  fare.  Have  they  a  right  to  refuse  him  if  there  is  sufficient 
room  on  the  cars? 

8.  Under  what  conditions  has  the  bailee  a  right  to  use  the  property 
bailed? 

9.  What  is  the  liability  of  a  person  who  accepts  goods  delivered  to 
him  to  which  he  is  not  entitled? 

10.  What  special  privileges  are  granted  to   boarding-house    keepers 
that  are  not  granted  to  innkeepers? 

11.  To  what  extent  have  statutes  allowed  an  innkeeper  to  limit  his 
liability? 

12.  A  shipper  concealed  money  in  a  box  of  merchandise  sent  by  ex- 
press.   The  money  was  lost.    Is  the  express  company  Uable?    Explain. 

CASE    PROBLEMS 

Give  the  decision  and  the  principle  of  law  involved  in  each  case. 

1.  Brown  borrowed  Green's  automobile  without  Green's  permission, 
and  while  driving  it  carefully  was  run  into  by  another,  and  both  cars  were 
destroyed.  Brown  was  exercising  the  greatest  care,  and  was  not  guilty  of 
any  negligence  whatever.    Is  he  liable  for  the  value  of  the  borrowed  car? 

2.  Adams,  a  farmer,  intending  to  go  to  town  the  next  day,  promises 
Groves  that  he  will  take  two  bags  of  wheat  for  him  without  charge.  The 
next  morning  he  starts  away  without  it,  and  Groves  is  put  to  the  necessity 
of  hiring  a  man  to  take  the  wheat  for  him.  Can  he  recover  damages  from 
Adams  for  breach  of  Adams's  agreement? 


234  BAILMENT 

3.  If  in  the  preceding  case  Adams  had  taken  Groves's  wheat  on  his 
wagon  and  started  to  town  with  it,  but  in  loading  it  had  carelessly  put  a 
plow  on  the  top  of  it,  in  consequence  of  which  the  bag  was  torn  open  and 
the  wheat  scattered  along  the  road,  could  Groves  have  recovered  of  Adams 
for  the  loss  of  the  wheat? 

4.  Bernard,  as  a  favor  to  Webster,  receives  a  sum  of  money  to  keep 
for  him  until  next  day.  He  puts  it  with  his  own  in  his  pocketbook  which 
was  in  his  coat  pocket.  That  night  Bernard's  house  was  robbed,  and  the 
pocketbook  that  also  contained  money  of  his  own  was  taken  from  his 
coat,  which  hung  on  the  foot  of  the  bed.  Was  Bernard  hable?  What 
degree  of  care  was  required  of  Bernard? 

5.  Nelson  borrows  a  bicycle  from  Wood,  rides  it  to  a  ball  game, 
and  leaves  it  in  the  bicycle  rack  unlocked.  The  bicycle  is  stolen.  It  was 
left  in  the  same  place  with  many  other  bicycles,  but  no  one  was  placed  in 
guard  over  it.    Is  Nelson  liable  to  Wood  for  the  bicycle? 

6.  Andrews  borrowed  a  horse  of  Bailey  with  which  to  work  his  garden. 
He  kept  the  horse  two  days,  and  then  sent  it  back.  While  Andrews  had 
the  horse  he  cared  for  it  and  furnished  its  feed.  One  shoe  was  off,  and  he 
had  the  horse  shod.  The  horse  was  injured  during  the  bailment  through  the 
slight  negligence  of  Andrews.    What  are  the  rights  of  the  parties? 

7.  Dodge  employed  a  keeper  of  a  garage  to  care  for  his  automobile. 
The  keeper  of  the  garage  left  the  door  open,  and  Dodge's  car  was  stolen. 
Was  the  garage  keeper  liable? 

8.  Pulver  takes  his  wagon  to  Hooker,  who  represents  himself  to  be  a 
wagon  maker,  and  employs  him  to  repair  it.  Hooker  is  incompetent  and 
does  not  understand  the  business,  and  as  a  result  the  wagon  is  damaged. 
Is  Hooker  liable? 

9.  Harris  takes  his  desk  to  a  cabinet  maker  to  be  repaired  and  re- 
varnished.  After  the  work  is  completed  he  sends  for  the  desk,  and  the 
cabinet  maker  refuses  to  deliver  it  until  he  receives  his  pay,  whereupon 
Harris  brings  an  action  to  recover  the  possession  of  the  desk.  Can  he 
succeed  without  paying  for  the  work? 

10.  In  the  above  case,  if  the  cabinet  maker  had  let  Harris  have  the 
desk,  could  he  have  compelled  Harris  to  deliver  it  back  to  him  or  else  pay 
him  for  his  services? 

11.  Reed  enters  Porter's  hotel,  and  leaving  his  baggage  with  the  clerk, 
goes  to  dinner.  After  dinner  he  calls  for  his  baggage,  meaning  to  go  away 
on  the  next  train.  The  baggage  is  lost.  Does  the  relation  of  innkeeper  and 
guest  exist  between  them? 


CASE  PROBLEMS  235 

12.  Hewlett  becomes  a  guest  at  Porter's  hotel,  and  while  he  is  there 
the  hotel  is  destroyed  by  fire.  Porter  is  free  from  negligence.  Is  he  liable 
to  Hewlett  for  baggage  lost  in  the  fire? 

13.  Porter  gave  notice  to  his  guests  according  to  statute  that  he  would 
be  liable  for  money  or  valuables  only  when  they  were  placed  in  the  office 
safe,  and  not  when  they  were  left  in  their  rooms.  Hewlett  left  $1000  in 
bank  notes  locked  in  his  trunk  in  his  room.  This  was  broken  into  and  the 
money  stolen.    Was  Porter  liable? 

14.  Hewlett  was  received  as  a  guest  by  Porter,  and  after  staying  three 
days  packed  up  his  trunk  preparatory  to  leaving.  Porter  refused  to  allow 
him  to  remove  his  trunk  from  the  hotel  until  his  bill  was  paid.  Had  Porter 
this  right? 

15.  The  Pony  Railroad  Company,  owners  of  a  small  line  of  railroad 
being  constructed  to  convey  passengers  to  a  pleasure  resort,  were  called 
upon  to  transport  for  Newton  a  heavy  boiler.  The  company  refused  to 
accept  it  on  the  grounds  that  they  had  no  car  sufficient  in  size  to  carry  it 
nor  any  faciUties  to  transport  it.    Had  they  the  right  so  to  refuse  it? 

16.  Conger  ships  a  barrel  of  crockery  which  has  been  but  carelessly 
packed  and  with  no  mark  placed  upon  it  to  give  the  carrier  notice  of  its 
contents.  While  being  handled  in  the  usual  course  of  transportation  the 
crockery  is  broken.    Is  the  carrier  Hable? 

17.  Clark  shipped  a  carload  of  cattle  from  Chicago  to  the  city  of  New 
York.  While  on  the  way  one  of  the  cattle,  being  vicious,  gored  a  number 
of  others  so  that  they  died  from  their  wounds.    Is  the  company  Hable? 

18.  The  carrier  receives  certain  goods  to  be  delivered  to  one  J.  R. 
Myers  of  the  city  of  New  York.  When  the  goods  reach  there,  a  person 
applies  to  the  freight  office  and  asks  for  the  goods,  stating  that  his  name  is 
Myers.  The  goods  are  delivered  to  him,  and  it  later  transpires  that  the 
party  who  applied  was  not  the  consignee  of  the  goods,  but  a  party  who 
obtained  them  fraudulently.  Can  the  consignee  recover  the  value  of  the 
goods  from  the  carrier? 

19.  Certain  goods  are  carried  by  the  New  York  Central  Railroad 
consigned  to  one  Powell  at  Buffalo.  The  goods  reach  Buffalo  and  are 
placed  in  the  depot  at  four  in  the  afternoon.  A  notice  is  mailed  to  Powell 
which  reaches  him  the  next  morning.  Within  that  time  a  fire  occurs  and 
the  goods  are  destroyed.    Is  the  railroad  company  responsible? 

20.  Drew,  a  passenger  on  the  New  York  Central  Railroad,  had  his 
trunk  checked  and  placed  in  the  baggage  car  of  the  train  upon  which  he 
received  transportation.  The  trunk,  which  was  lost,  contained  his  wear- 
ing apparel,  a  dress  for  his  wife,  which  he  had  purchased  on  the  journey. 


236  BAILMENT 

some  presents  for  his  friends,  and  a  sum  of  $20  in  a  purse,  which  money- 
he  intended  to  use  on  his  journey.  Was  the  railroad  company  Hable  for 
all  of  the  contents  of  this  trunk?  If  not,  for  what  portion  of  it  was  the 
company  liable? 

21.  If  the  company  had  expressly  contracted  with  Drew  that  their 
Uability  for  baggage  should  be  Hmited  to  $50  and  he  had  had  notice  of  this 
limitation,  would  they  have  been  liable  for  a  greater  amount? 

22.  Briggs  checks  a  hand  bag  at  a  railway  company's  parcel  room,  pays 
10  cents,  and  receives  a  check.  When  he  returns  later  and  presents  the 
check,  it  is  discovered  that  the  bag  has  been  stolen.  Is  the  railway  com- 
pany liable?     Explain. 

23.  Cooper  receives  at  4  p.m.  on  the  afternoon  of  a  certain  day,  by 
registered  mail,  $10,000  in  negotiable  bonds.  It  is  too  late  to  lock  them  in 
his  safe  deposit  box,  so  he  goes  to  his  bank,  the  vault  of  which  is  still  open, 
and  gets  the  bank  to  take  the  bonds  for  safe-keeping  overnight.  When 
he  goes  to  get  his  bonds  the  next  morning  they  cannot  be  found.  Cooper 
sues  the  bank  for  the  value  of  the  bonds.    What  must  he  prove  to  recover? 

24.  Anson,  while  traveling,  stops  at  the  Denver  Hotel  and  for  safe- 
keeping places  his  valuables  with  the  owner  of  the  hotel,  who  puts  them  in 
the  safe  for  that  purpose.  The  safe  is  broken  open  and  Anson's  valuables 
are  stolen.  Anson  brings  action  against  the  owner  of  the  hotel.  Can  he 
recover?    Explain. 

25.  Warren  delivered  to  the  N.  Y.  C.  R.  R.  Co.  in  New  York  a  trunk 
to  be  forwarded  to  Chicago  and  two  days  later  called  for  it  at  Chicago. 
It  could  not  be  found.  Warren  sued  the  company  and  in  the  suit  proved 
the  delivery  to  the  company,  the  demand,  and  the  value.  The  company 
did  not  offer  any  evidence.     Should  Warren  recover?    Explain. 

26.  Carr  finds  on  the  sidewalk  a  purse  containing  $10,  which  has  been 
lost  by  Chase.  Chase  learns  that  Carr  has  found  the  purse  and  demands 
its  return.  Carr  decUnes  to  return  the  purse  and  its  contents  unless  Chase 
pays  him  $1  for  his  trouble.  Can  Chase  recover  the  purse  and  its  contents? 
Explain. 

27.  Harcourt  found  a  valuable  dog  and  took  him  into  his  custody. 
He  advertised  and  tried  to  find  the  owner,  but  did  not  succeed.  After  about 
a  month  had  passed,  the  owner  of  the  dog  discovered  him  in  Harcourt's 
possession  and  demanded  his  return.  Harcourt  refused  to  return  the  dog 
to  the  owner  until  he  was  reimbursed  for  the  expense  incurred  in  adver- 
tising and  caring  for  the  dog.  The  owner  took  action  to  recover  possession 
of  the  dog.    Can  he  succeed?    Explain. 


CASE  PROBLEMS  237 

28.  Mrs.  Darrow,  who  was  to  be  away  for  several  weeks,  left  her 
silverware  with  Mrs.  Emmel,  a  friend  and  neighbor  of  hers,  to  be  cared  for 
during  her  absence.  While  Mrs.  Emmel  was  out  one  afternoon,  her  house 
was  robbed,  and  her  own  silverware  as  well  as  Mrs.  Darrow's  was  stolen. 
Mrs.  Emmel  admitted  that  she  'eft  the  door  of  her  house  unlocked  the 
afternoon  she  was  away.  Should  Mrs.  Darrow  bring  action  against  Mrs. 
Emmel  to  recover  the  value  of  her  silverware,  could  she  succeed?    Explain. 

29.  Dempsey  borrowed  a  wagon  from  Thomas  to  use  in  hauling  stone. 
Later  and  without  telling  Thomas  he  decided  to  use  the  wagon  to  make  a 
trip  to  the  village,  a  distance  of  about  three  miles.  While  the  wagon  was 
standing  on  the  street,  it  was  run  into  by  an  automobile  and  was  badly 
damaged.  In  an  action  by  Thomas  to  recover  the  value  of  the  wagon, 
Dempsey  proved  that  he  had  been  in  no  way  negligent.  Can  Thomas 
recover?     Explain. 

30.  Hendricks  delivered  50  bushels  of  wheat  to  a  miller  and  was  to  re- 
ceive in  return  for  it  a  certain  amount  of  flour.  That  night  the  mill  and  its 
contents  were  destroyed  by  fire.  On  whom  does  the  loss  of  this  wheat  fall? 
Explain. 

31.  Samuels  took  his  hand  bag  on  a  train  with  him  and  put  it  in  the 
rack  above  his  seat.  While  he  was  out  of  his  seat  the  bag  was  stolen.  He 
sued  the  railroad  company  for  the  value.   Should  he  recover? 

32.  Rankin  hired  Lowery  to  pasture  10  head  of  young  stock  for  the 
summer.  Lowery's  pasture  was  near  a  railroad  and  his  hired  man  left 
the  gate  to  the  pasture  open  so  that  two  head  of  the  young  stock  got  on  the 
railroad  track  and  were  killed.  Rankin  took  action  against  Lowery  to  re- 
cover the  value  of  the  stock  killed.     Can  he  succeed?    Explain. 

33.  Hopper  delivered  a  quantity  of  mahogany  lumber  to  Hensel,  a 
cabinet  maker,  to  be  made  into  furniture.  Hensel  had  the  work  about  half 
done  when  the  wood  and  furniture  were  stolen.  How  will  this  case  have  to 
be  adjusted?    Explain. 

34.  As  a  result  of  an  accident  on  a  railroad,  a  quantity  of  fruit  con- 
signed to  Benedict  was  delayed  and  suffered  much  damage.  Benedict  took 
action  against  the  railroad  company  to  recover.    Can  he  succeed?    Explain. 

35.  A  street  car,  running  down  grade,  got  to  running  at  an  excessive 
speed,  though  not  beyond  control  of  the  motorman.  A  passenger  became 
frightened,  jumped  off,  and  was  severely  injured.  He  took  action  against 
the  street  car  company  to  recover  damages.     Can  he  succeed? 


INSURANCE 

I.   IN   GENERAL 

Insurance. —  The  term  "  insurance  "  signifies  indemnity  against 
losses.  Certain  misfortunes  may  happen  which,  although  by  no 
means  frequent  in  the  experience  of  the  average  man,  are 
of  so  much  importance  and  may  entail  upon  him  such  severe 
loss  that  he  seeks  a  mode  of  protection.  The  impending  loss 
may  be  the  destruction  of  one's  property  by  fire,  flood,  or  cy- 
clone; or  it  may  be  the  loss  of  one's  earning  capacity,  by  acci- 
dent to  his  person;  or  the  loss  to  his  family,  by  reason  of  his 
death. 

Insurance  is  based  on  the  principle  of  distribution  and  shar- 
ing of  losses. 

Insurance  Companies.  —  For  the  purpose  of  affording  pro- 
tection against  these  calamities  there  exist  many  large  cor- 
porations known  as  insurance  companies,  which  engage  in  the 
business  of  assuming  such  risks  for  a  certain  compensation 
known  as  a  premium.  These  premiums,  although  comparatively 
small,  being  contributed  by  the  many,  form  a  large  fund,  out 
of  which  the  losses  to  the  few  are  indemnified. 

Every  state  has  an  insurance  official,  whose  duty  it  is  to 
regulate  and  inspect  the  different  insurance  companies  doing 
business  in  his  state  and  to  see  that  they  are  solvent  and  that 
their  affairs  are  properly  conducted. 

Definition.  • —  Insurance  is  defined  as  a  contract  whereby  for 
a  stipulated  consideration  one  party  undertakes  to  compensate 
the  other  for  damage  to  a  particular  subject  resulting  from  a 
specified  peril.  The  party  agreeing  to  make  the  compensation 
is  called  the  insurer,  or  the  underwriter,  the  other  party  to  the 
contract  being  the  insured.  The  written  contract  is  called  the 
pojicy,  and  the  event  insured  against,  the  risk. 

2.   FIRE  INSURANCE 
Definition.  —  Fire    insurance    is    a    contract    whereby    the 
insurer  agrees  to  assume  the  risk  and  indemnify  the  insured  for 
loss  caused  directly  or  indirectly  by  fire. 

238 


FIRE  INSURANCE  239 

Insurable  Interest.  —  The  insured  must  have  an  insurable 

interest  in  the  property  insured.     This  means  that  he  must 

have  an  interest  of  such  a  nature  that  the  fire  insured  against 

would  directly  injure  him.     If  the  person  had  no  interest  in 

the  property  upon  which  he  obtained  insurance,  the  only  object 

would  be  a  mere  speculation,  and  the  contract  would  not  be 

upheld  in  law. 

Graham  had  insured  certain  property  in  a  factory,  of  which  he  was 
manager  on  a  salary,  under  a  contract  having  a  number  of  years  to  run 
and  which  also  secured  to  him  important  and  valuable  privileges  to  pur- 
chase the  business.  It  was  held  that  he  had  an  insurable  interest  in  the 
property,  since  its  destruction  would  cause  him  a  pecuniary  loss. 

—  Graham  v.  Insurance  Co.,  48  S.  C.  195. 

This  interest  may  be  an  existing  interest;  as,  for  example, 
the  absolute  ownership,  or  a  life  interest,  or  a  right  by  mortgage 
or  lien.  Or  it  may  be  only  an  interest  in  expected  profits  or 
goods,  as  a  shipowner's  right  to  insure  goods  upon  which  he  has 
a  claim  for  freight. 

The  owner  of  property  does  not  lose  his  insurable  interest  by 
mortgaging,  leasing,  or  giving  an  executory  contract  to  sell  it, 
as  more  than  one  person  can  have  an  insurable  interest  in  the 
property.  For  example,  A  owns  a  house  and  lot,  and  leases  it 
to  B,  mortgages  it  to  C,  and  gives  D  an  executory  contract  of 
sale.  Each  one  of  these  four  parties  has  an  insurable  interest 
in  the  house. 

Divided  Interest.  —  When  a  house  subject  to  a  mortgage  is 
insured  for  its  full  value,  the  mortgagee  can  recover  on  the 
policy  up  to  the  amount  of  his  mortgage,  and  the  owner  can 
recover  the  balance  of  the  policy  being  the  value  of  the  house 
less  the  mortgage.  The  mortgagee  is  entitled  to  recover  the 
amount  of  his  mortgage  up  to  the  amount  of  the  policy  whether 
the  owner's  equity  is  adequately  insured  or  not.  The  mortga- 
gee loses  his  claim  to  the  insurance  as  soon  as  the  mortgage  is 
paid. 

Form  of  Contract.  —  The  contract  of  insurance  is  usually 
in  writing;  although  it  may  be  oral,  unless  expressly  required 
by  statute  to  be  written.  In  most  states  a  standard  form  of 
policy  has  been  established  by  statute. 

This  contract  requires  a  meeting  of  the  minds  of  the  parties, 


240  INSURANCE 

and  certain  terms  must  be  definitely  settled  upon,  viz.:  the 
property  insured,  the  title  or  interest ,  of  the  insured,  the  risk 
insured  against,  the  rate  of  premium,  and  the  term  of  duration 
of  the  insurance. 

An  oral  contract  of  insurance  made  with  an  agent  represent- 
ing two  companies,  the  company  assuming  the  risk  not  being 
specified,  is  unenforceable.  An  oral  contract  of  insurance  must 
possess  all  the  requisites  of  a  contract.  In  this  case  the  agent 
not  having  designated  which  of  his  two  principals  he  intended 
to  bind,  neither  is  bound,  as  there  could  be  no  "meeting  of  the 
minds." 

The  contract  is  binding  and  in  force  as  soon  as  the  agree- 
ment is  completed,  although  the  written  policy  may  not  have 
been  actually  deHvered,  nor  in  fact  ever  have  been  issued. 

Taylor  made  a  valid  oral  contract  for  insurance  with  the  Franklin  Fire 
Ins.  Co.  Before  a  policy  was  issued  the  property  was  destroyed  by  fire. 
It  was  held  that  a  court  of  equity  would  compel  the  issuance  and  de- 
livery of  a  policy  even  after  the  loss,  and  enforce  payment  thereon. 

—  Taylor  v.  Franklin  Fire  Ins.  Co.,  52  Miss.  441. 

Effect  of  Fraud. —  Any  concealment  of  a  material  fact  in- 
quired into  by  the  insurer  will,  if  made  intentionally  by  the  in- 
sured, avoid  the  policy.  Still  neither  party  is  bound  to  volunteer 
information  regarding  matters  of  which  the  other  has  knowl- 
edge or  of  which  in  the  exercise  of  ordinary  care  he  ought  to 
have  knowledge.  But  the  insured  must  not  withhold  infor- 
mation which  would  affect  the  judgment  of  the  insurer. 

One  of  the  questions  in  the  application  for  insurance  was,  "What  is 
the  distance,  occupation,  and  material  of  all  buildings  within  150  feet?" 
No  answer  was  made  to  this  question  and  the  company  sought  to  avoid 
the  poUcy  on  that  ground.  Held,  that  they  might  have  refused  to  issue  the 
policy  or  have  sought  further  information,  but  that  by  issuing  it  they  waived 
the  answer  to  this  question.  —  Paul  v.  Armenia  Ins.  Co.,  91  Pa.  State  520. 

Representation.  —  A  representation  in  connection  with  this 
subject  is  said  to  be  a  statement  of  fact  made  at  the  time  of,  or 
before,  the  contract  relating  to  the  proposed  adventure,  and 
upon  the  good  faith  of  which  the  contract  is  made.  A  material 
misrepresentation  of  fact,  whether  innocent  or  fraudulent, 
avoids  the  contract. 

Warranty.  —  A  warranty  is  a  statement  of  fact  or  promise  of 
performance  relating  to  the  subject  of  insurance  or  to  the  risk, 


FIRE  INSURANCE  POLICY  341 

inserted  in  the  policy  itself  or  expressly  made  a  part  of  it,  which, 
if  not  literally  true  or  strictly  complied  with,  will  avoid  the  con- 
tract. It  differs  from  a  representation,  which,  as  we  have  seen, 
is  a  collateral  inducement  outside  of  the  contract  and  need  be 
only  substantially  complied  with,  whereas  the  warranty  must  be 
contained  in  the  policy  and  must  be  strictly  performed. 

Any  statement  or  description  oh  the  part  of  the  insured  on  the  face 
of  the  policy  which  relates  to  the  risk  is  an  express  warranty,  and  such  a 
warranty  must  be  strictly  complied  with  or  the  insurance  is  void. 

—  Wood  V.  Insurance  Co.,  13  Conn.  533. 

If  questions  in  the  application  are  not  answered  or  if  the 
answers  are  incomplete  but  not  false,  there  is  no  breach  of 
warranty,  provided  the  insurer  accepts  the  application  without 
objection. 

Although  the  breach  of  warranty  or  misrepresentation  of  a 
material  fact  may  not  contribute  to  or  cause  the  loss,  neverthe- 
less the  policy  is  avoided,  for  the  risk  is  different  from  that 
which  the  insurer  undertook  to  assume. 

The  application  contained  a  statement  that  the  factory  insured  was 
operated  for  the  account  of  the  owner  and  that  it  was  immediately  super- 
intended by  one  of  the  owners.  This  statement  was  untrue.  It  was  held 
that  the  misrepresentation  avoided  the  policy  whether  they  were  material 
to  the  loss  or  not.  —  Wilson  v.  Conway  Ins.  Co.,  4  R.  I.  141. 

QUESTIONS 

1.  On  what  principle  is  insurance  based? 

2.  What  is  the  source  of  this  protection  known  as  insurance? 

3.  How  is  fire  insurance  defined? 

4.  What  is  an  insurable  interest?    Give  three  examples. 

5.  What  are  the  requirements  in  insurance  contracts? 

6.  What  must  the  policy  contain? 

7.  Is  an  oral  contract  of  insurance  binding?     Explain. 

8.  What  is  the  effect  of  fraud  practiced  in  obtaining  insurance? 

9.  How  will  a  material  misrepresentation  of  fact  affect  the  contract? 

10.  What  is  a  warranty  as  applied  to  insurance  contracts? 

11.  What  is  the  effect  of  not  answering  questions  asked  by  the  insurer? 

3.   FIRE  INSURANCE  POLICY 

Standard  Form  of  Policy.  —  Statutes  have  been  passed  in 
several  states  adopting  a  standard  form  of  fire  insurance  policy, 


242  INSURANCE 

the  object  being  to  establish  a  uniformity  of  contract  and  to 
avoid  conflict  between  different  companies  insuring  the  same 
property. 

Policies  may  be  either  open  or  valued.  In  an  open  policy 
the  amount  in  case  of  loss  is  not  fixed  by  the  policy.  It  simply 
states  within  what  limits  the  company  will  be  liable.  A  valued 
policy  fixes  definitely  the  amount  payable  in  case  of  total  loss. 
When  a  fire  occurs  the  company  pays  the  actual  loss  up  to  the 
amount  named  in  the  policy. 

Loss  by  Fire.  —  Loss  by  fire  includes  loss  which  is  caused  by 
the  burning  of  the  property  insured  or  which  is  the  result  of 
fire  in  close  proximity,  the  heat  from  which  damages  the  prop- 
erty insured.  It  also  includes  the  loss  or  damage  by  the  water 
from  the  fire  engines  or  from  the  exposure  or  theft  of  the  goods 
during  their  removal  to  a  place  of  safety  at  the  time  of  a  fire. 

It  was  held  that  the  damage  and  expense  caused  by  removing,  with 
a  reasonable  degree  of  care  suited  to  the  occasion,  insured  goods  from  ap- 
parent immediate  destruction  by  fire,  are  covered  by  a  policy  insuring  the 
goods  against  ''loss  and  damage  by  fire,"  although  the  building  in  which 
they  were  insured  and  from  which  they  were  removed  was  not,  in  fact, 
burned.  —  White  v.  Insurance  Co.,  57  Maine  91. 

It  includes  loss  by  fire  caused  by  lightning,  but  does  not 
include  loss  caused  by  lightning  unless  a  lightning  clause  is 
inserted;    therefore  it  is  customary  to  include  such  a  clause. 

If  the  fire  is  caused  by  the  act  of  an  incendiary,  or  by  the 
acts  of  the  insured  while  insane,  or  by  the  careless  acts  of  a 
third  person,  the  insurance  company  is  liable. 

Location.  —  The  standard  policy  contains  a  statement  of  the 
location  of  the  property  insured;  and,  if  it  is  removed  to  another 
or  different  place  without  the  consent  of  the  insurer,  the  policy 
is  no  longer  in  effect.  So  if  a  party  insures  his  household  fur- 
niture while  living  on  a  certain  street,  and  then  moves  to  an- 
other street,  the  insurance  ceases  to  be  in  force.  The  reason 
for  this  rule  is  plain,  for  the  risk  is  likely  to  vary  in  different 
locations,  and  whether  it  does  or  not,  the  insurer  has  the  right 
to  know  what  risk  he  is  assuming. 

A  policy  of  insurance  against  fire  was  issued  on  furniture  described  as 
contained  in  a  house  on  McMillen  Street,  Providence,  R.  I.  The  insured, 
without  the  knowledge  of  the  insurer,  moved  the  articles  to  a  house  on 


FIRE  INSURANCE  POLICY  243 

another  street,  in  which  they  were  burned.  Held,  that  the  insured  could 
not  recover.  The  statement  of  the  location  of  the  goods  is  a  continuing 
warranty.  —  Lyons  v.  Insurance  Co.,  14  R.  I.  109. 

Amount  Recoverable.  —  The  market  or  cash  value  of  the 
property  at  the  time  of  the  fire  is  the  amount  that  can  be  re- 
covered of  the  insurance  company  if  this  sum  does  not  exceed 
the  amount  of  the  policy.  If  the  property  is  only  partially 
destroyed,  the  amount  that  may  be  recovered  is  the  difference 
in  the  value  of  the  property  before  and  after  the  fire.  The 
insurer  generally  reserves  the  right  to  replace  the  property,  and  in 
case  he  elects  so  to  do,  this  takes  the  place  of  money  damages. 

Additional  Insurance.  —  The  standard  policy  of  insurance 
contains  a  clause  which  provides  that  the  policy  shall  be  void 
in  case  the  insured  now  has,  or  shall  hereafter  make  or  procure, 
any  other  contract  of  insurance,  whether  valid  or  not,  on  prop- 
erty covered,  in  whole  or  in  part  by  this  policy,  without  an 
agreement  indorsed  or  added  thereon,  allowing  such  additional 
insurance.  The  reason  for  this  provision  is  that  the  companies 
do  not  wish  to  have  the  property  insured  for  more  than  its  value, 
and  they  also  desire  to  know  whether  any  other  insurance  is 
carried  on  the  property,  so  that  in  case  of  loss,  if  insured  in 
several  companies,  each  need  contribute  only  its  proportionate 
share. 

Alienation  Clause.  —  The  standard  policy  also  contains  a 
clause  known  as  the  alienation  clause,  which  renders  the  policy 
void  if  any  change  other  than  the  death  of  the  insured  takes  place 
in  the  interest,  title,  or  possession  of  the  subject  insured  (except 
change  of  occupants  without  increase  of  hazard) ,  whether  by  legal 
process  or  judgment,  or  by  the  voluntary  act  of  the  insured.  This 
section  means  any  parting  with  or  sale  of  the  premises,  and  does 
not  include  the  giving  of  a  mortgage  upon  the  insured  premises. 

Assignment.  —  A  fire  insurance  policy  is  not  assignable,  and 

if  assigned  without  the  consent  of  the  insurer  it  is  void. 

A  corporation  was  insured  under  a  policy  containing  a  provision  that  it 
should  not  be  assigned  without  the  consent  of  the  insurer.  The  corporation 
transferred  all  its  property,  including  the  policy,  to  the  Miles  Lamp  Chimney 
Co.,  a  corporation  having  the  same  stockholders  as  the  original  corporation, 
but  the  consent  of  the  insurer  was  not  obtained.  Held  that  the  Miles  Lamp 
Chimney  Co.  acquired  no  rights  under  the  policy. 

' — Miks  Lamp  Chimney  Co.,  v.  Erie  Fire  Ins.  Co.,  164  Ind.  i8i. 


244  INSURANCE 

If  with  the  consent  of  the  company  the  property  insured  as  | 
well  as  the  policy  is  assigned,  a  new  contract  is  formed  which 
will  not  be  affected  by  any  act  of  the  assignor. 

Unoccupied  Dwelling.  —  The  standard  form  of  policy  also 

provides  that  if  the  property  is  a  dwelling  and  remains  vacant 

or  unoccupied  without  the  consent  of  the  company  for  the 

period  of  ten  days  the  insurance  is  of  no  effect.    This  clause  is 

held  to  be  a  reasonable  restriction,  as  the  insurer  is  entitled  to 

know  that  the  premises  are  receiving  ordinary  supervision.     It 

means  that  the  dwelling  must  have  some  one  living  in  it. 

The  policy  insured  a  "dwelling  house"  and  provided  that  it  should  be 
void  if  the  premises  were  unoccupied  for  more  than  ten  days.  At  the  date 
of  the  policy  and  for  more  than  ten  days  thereafter,  the  house  was  unoccu- 
pied, but  Thomas's  servants  had  been  in  the  house  for  two  days  before  the 
fire,  cleaning  and  preparing  it  to  be  occupied.  Held,  the  policy  was  void 
because  of  breach  of  condition.  The  presence  of  the  servants  did  not  con- 
stitute occupancy  within  the  policy. 
—  Thomas  v.  Hartford  Fire  Ins.  Co.,  21  Ky.  Law  Rep.  914  (53  S.  W.  297). 

Factory  Buildings.  —  There  is  a  further  provision  rendering  . 
the  policy  void  if  the  subject  insured  is  a  factory  building  and 
is  operated  after  10  o'clock  at  night  or  some  other  given  hour, 
or  is  not  operated  for  ten  consecutive  days  or  some  other  specific 
length  of  time. 

The  policy  of  insurance  on  a  flour  mill  contained  the  provision  that  if 
the  mill  were  shut  down  20  days  without  notice  to  the  company,  the  policy 
would  be  suspended  from  the  expiration  of  that  time  until  the  mill  resumed 
work.  Held,  that  the  stoppage  of  the  mill  for  more  than  20  days  without  the 
required  notice  suspended  the  policy,  though  the  mill  was  stopped  for  neces- 
sary repairs.  —  Day  v.  Insurance  Co.,  70  Iowa  710. 

Renewals.  -^^  The  poHcy  is  often  renewed  by  a  short  form  of 
receipt  which  obviates  the  necessity  of  a  new  policy.  This 
renewal,  which  may  be  either  in  writing  or  by  parol,  in  sub- 
stance creates  a  new  contract  on  the  same  terms  and  conditions 
as  those  agreed  upon  in  the  old  policy. 

Cancellation.  —  The  standard  form  of  policy  contains  a  stipu- 
lation that  the  poh'cy  may  be  canceled  at  any  time  by  the 
company,  or  at  the  request  of  the  insured  upon  giving  five  days' 
notice  of  such  cancellation.  And  in  case  of  such  cancellation 
the  unearned  premiums  paid  shall  be  returned  to  the  insured. 

Mortgaged  Property.  —  When  the  property  insured  is  mort- 


FIRE  INSURANCE  POLICY  245 

gaged  and  it  is  desired  that  in  case  of  fire  the  insurance  shall  be 
paid  to  the  mortgagee  to  satisfy  his  claim,  it  is  the  custom  to 
attach  a  mortgage  clause  which  provides  that  the  insurance  shall 
be  paid  to  the  mortgagee  named  as  his  interest  may  appear.  In 
such  cases  it  is  customary  for  this  mortgagee  to  hold  the  original 
policy. 

Notice  of  Loss.  —  After  a  loss  it  is  the  duty  of  the  insured  to 
give  immediate  notice  to  the  company.  Under  the  standard 
form  of  policy  this  notice  must  be  in  writing.  The  damaged 
goods  must  be  inventoried,  and  a  proof  of  loss  duly  sworn  to 
must  be  filed  within  sixty  days. 

Unless  the  notice  is  given  as  stated  and  the  proof  of  loss  filed 
within  the  specified  time,  no  recovery  can  be  had  on  the  policy. 

Pro  Rata  Clause.  —  The  standard  policy  contains  a  pro  rata 
clause,  under  which  the  insured  can  not  recover  more  than  the 
amount  of  his  loss  in  the  property  insured,  where  there  is  more 
than  one  policy  on  the  same  property.  Thus  a  man  may  have 
his  house  insured  in  three  companies,  as  follows:  in  number  one 
for  $4000,  in  number  two  for  $6000,  and  in  number  three  for 
$2000.  The  house  is  damaged  by  fire  to  the  amount  of  $6000. 
The  insured  can  recover  only  this  amount,  and  the  companies 
will  be  con»pelled  to  pay  their  pro  rata  portions;  that  is,  num- 
ber one  will  be  required  to  pay  $2000,  number  two  $3000,  and 
number  three  $1000.  This  rule  does  not  apply  to  the  case  of 
several  persons  with  different  interests  in  the  same  property, 
but  to  the  case  of  any  insured  who,  if  he  recovered  the  full 
amount  on  all  poHcies,  would  be  getting  double  insurance  upon 
the  loss. 

QUESTIONS 

1.  What  is  the  object  of  the  "standard  form  of  policy"? 

2.  What  does  the  policy  against  loss  by  fire  include? 

3.  Is  damage  caused  by  lightning  covered  by  a  policy  against  fire? 

4.  Is  the  company  liable  if  the  fire  was  caused  by  an  incendiary? 

5.  How  does  change  of  location  of  the  property  insured  affect  the 
policy?  Why? 

6.  In  case  of  fire  what  amount  is  recoverable  on  the  policy? 

7.  (a)  What  is  the  "additional  insurance"  provision  in  the  standard 
policy?  {h)  What  is  the  reason  for  this  provision? 

8.  What  is  the  "alienation  clause"? 


246  INSURANCE 

9.   Are  fire  insurance  policies  assignable?    Explain. 

10.  What  are  the  provisions  of  the  standard  policy  with  reference  to 
occupancy  of  dwelling  property? 

11.  Mention  some  of  the  provisions  applicable  to  the  insurance  of 
factory  buildings. 

12.  {a)  How  may  a  policy  be  renewed?    (b)  How  may  it  be  canceled? 

13.  What  is  a  "mortgagee  clause"  in  insurance  policies? 

14.  In  case  insured  property  is  damaged  by  fire,  what  steps  should  be 
taken? 

15.  What  is  the  ''pro  rata  clause"  contained  in  the  standard  policy? 

4.     LIFE  INSURANCE 

Definitions.  —  Another  form  of  insurance  is  life  insurance. 
This  kind  of  contract  appears  in  an  almost  endless  number  of 
forms.  It  is  in  its  simplest  form  an  agreement  upon  the  part  of 
the  insurer  to  pay  a  specific  sum  of  money  upon  the  death  of  a 
certain  person,  called  the  insured,  to  a  specific  person  called  the 
beneficiary.  .The  consideration  paid  by  the  insured  is  called  the 
premium,  and  is  generally  a  certain  amount  payable  annually 
or  monthly. 

Forms  of  Agreement.  —  There  are  many  different  forms  of 
life  insurance  agreements.  The  most  common  are  termed 
endowment  insurance,  term  payment  insurance  (ic^  15,  or  20 
payment  Hfe  policies),  investment  or  income  insurance,  and 
straight  or  whole  life  insurance.  In  most  forms  of  life  insurance 
except  the  whole  life  policy,  the  insured,  after  paying  the  pre- 
mium for  a  given  number  of  years,  will  receive  a  certain  sum  of 
money,  or  if  he  dies  before  the  expiration  of  the  period,  the 
amount  of  the  policy  will  go  to  the  beneficiary.  The  beneficiary, 
instead  of  being  a  specific  person,  may  be  the  estate  of  the  insured 

Insurable  Interest.  —  Every  person  has  an  insurable  interest 
in  his  own  life  and  also  in  the  life  of  any  person  upon  whom  he 
depends  either  wholly  or  in  part  for  education  or  support,  and 
in  the  life  of  any  person  who  is  under  a  legal  obligation  to  him  for 
the  payment  of  money.  In  short,  a  person  may  be  said  to  have 
an  insurable  interest  in  the  life  of  any  one  whose  death  would 
naturally  cause  him  a  pecuniary  loss  or  disadvantage. 

Bevin  advanced  to  Barstow  $300  and  some  articles  of  personal  property, 
under  an  agreement  that  Barstow  should  go  to  California  and  labor  there  for 


LIFE  INSURANCE  247 

at  least  one  year,  and  then  account  to  Bevin  for  one  half  the  profits.  Bevin 
then  insured  Barstow's  life  for  $1000.  Held,  that  Bevin  had  an  insurable 
interest  in  Barstow's  life  and  could  recover  the  amount  of  the  policy. 

—  Bevin  v.  Life  Insurance  Co.,  23  Conn.  244. 

A  partner  has  an  insurable  interest  in  the  life  of  his  copartner, 
and  a  creditor  of  the  partnership  in  the  life  of  each  partner. 

A  creditor  of  a  firm  has  an  insurable  interest  in  the  life  of  one  of  the 
partners  thereof,  although  the  other  partner  may  be  entirely  able  to  pay  the 
debt,  and  although  the  estate  of  the  insured  is  perfectly  solvent. 

—  Morrell  v.  Life  Insurance  Co.,  10  Cush.  (Mass.)  282. 

A  woman  has  an  insurable  interest  in  her  husband's  life,  and 
a  man  has  the  same  interest  in  the  life  of  his  wife.  Mere  rela- 
tionship is  not  enough  to  give  an  insurable  interest.  There 
must  be  an  element  of  dependency  coupled  with  the  relationship. 
A  nephew  has  no  insurable  interest  in  the  life  of  his  uncle  nor 
has  one  brother  in  the  life  of  another. 

If  the  person  taking  out  the  policy  has  an  insurable  interest 
to  support  the  poKcy  at  the  time  it  is  obtained,  he  may  make 
it  payaple  to  any  one,  and  it  is  generally  held  that  he  may  sub- 
sequently assign  it  to  any  one  whether  such  beneficiary  or  trans- 
feree has  an  insurable  interest  or  not,  unless  it  is  apparent  that 
the  transaction  is  a  mere  cover  for  a  wagering  contract. 

If  the  person  taking  out  the  insurance  had  an  insurable 
interest  at  the  time,  the  fact  that  the  interest  ceases  does  not 
affect  the  policy.  Therefore,  if  a  man  insures  the  life  of  his 
debtor  and  the  debtor  subsequently  pays  the  debt,  the  policy 
may  still  be  continued  and  enforced  at  the  death  of  the  party 
insured. 

In  the  case  in  which  the  insured  designates  another  person  as 
beneficiary  the  right  of  such  beneficiary  as  a  general  rule  becomes 
vested  at  once  and  it  cannot  be  disturbed  by  assignment  or  in 
any  other  way  without  the  consent  of  such  beneficiary,  unless 
the  right  to  make  a  new  appointment  is  reserved  in  the  policy 
itself. 

When  a  father  takes  out  a  policy  of  insurance  upon  his  own  life  in  favor 
of  an  infant  daughter,  paying  all  of  the  premiums  himself  and  retaining  the 
policy,  the  contract  is  between  the  insurance  company  and  the  daughter, 
and  upon  the  father's  death  the  legal  title  to  the  policy  vests  in  her  and  she 
is  entitled  to  the  possession  of  it. —  Glanz  v.  Gloeckler,  104  111.  573. 


248  INSURANCE 

Premiums.  —  The  premiums  on  life  insurance  are  graded 
according  to  the  age  of  the  insured.  The  person  insured  must 
undergo  a  physical  examination,  as  only  healthy  persons  are 
insured.  The  amounts  of  the  premiums  are  determined  by 
average  results  computed  upon  the  length  of  life  of  a  large  number 
of  persons  carefully  arranged  and  tabulated.  These  results  so 
arranged  are  called  mortuary  tables. 

Effect  of  Concealment.  —  The  contract  of  life  insurance,  like 
that  of  fire  insurance,  requires  the  exercise  of  good  faith  between 
the  parties,  but  to  avoid  the  policy  the  concealment  of  a  material 
fact  not  made  the  subject  of  an  express  inquiry  must  be  inten- 
tional. 

Misrepresentation.  —  A  misrepresentation,  if  material,  will 
avoid  the  poHcy.  The  same  rules  apply  to  misrepresentations 
in  life  insurance  as  in  fire  insurance,  but  warranties  are  statements 
of  facts  which  are  a  part  of  the  policy  and  must  be  strictly 
performed  or  the  policy  is  avoided. 

The  policy  made  the  application  a  part  thereof.  In  the  application  the 
insured  falsely  stated  that  she  had  not  consulted  a  physician  and  had  not 
had  a  certain  disease.  These  false  answers  constituted  a  breach  of  warranty 
and  avoided  the  policy  regardless  of  their  materiality. 

—  Flippen  v.  Life  Ins.  Co.,  30  Tex.  Civil  Appeal  362. 

Life  insurance  companies  generally  ask  many  questions  in 
their  applications  and  unless  the  application  is  expressly  incor- 
porated in  and  made  a  part  of  the  policy,  the  answers  to  these 
questions  are  considered  as  representations  and  not  as  warranties. 
If  they  are  so  included,  they  must  be  strictly  true. 

If  the  questions  are  not  answered  or  are  only  partially  an- 
swered, there  is  no  misrepresentation  or  breach  of  warranty. 

In  the  application  this  question  was  asked,  "Has  any  application  been 
made  to  this  or  any  other  company  for  insurance  on  the  life  of  the  party? 
If  so,  with  what  result?"  To  this  inquiry  there  was  no  answer.  Held,  that 
the  failure  to  disclose  unsuccessful  applications  for  additional  insurance  did 
not  avoid  the  policy.  The  issuing  of  the  policy  without  further  inquiry  was 
a  waiver  by  the  company  of  the  right  to  inquire  further. 

—  Phoenix  Life  Insurance  Co.  v.  Raddin,  120  U.  S.  183. 

Forms  of  Policies.  —  There  is  no  standard  form  of  life  insur- 
ance policy,  and  the  forms  of  the  different  companies  vary 
materially.    It  is  customary  to  have  the  policy  provide  that  the 


LIFE  INSURANCE  249 

application  be  made  a  part  of  the  contract,  thereby  making  the 
statements  in  the  application  express  warranties.  So  a  denial 
that  one  is  affected  with  a  disease  avoids  the  poHcy  if  untrue. 
The  application  often  inquires  as  to  what  other  insurance  is 
carried,  and  a  deceptive  statement  on  this  point  is  fatal  to 
the  policy.  So  also  a  statement  as  to  age  is  material  and  the 
answer  must  be  correct. 

Payment.  —  If  the  policy  contains  a  provision  that  the  insur- 
ance ceases  unless  the  premium  is  paid  when  due  and  that  the 
policy  is  not  to  take  effect  until  the  first  premium  is  actually 
paid,  the  condition  must  be  strictly  comph'ed  with  or  the  policy 
fails.    Prompt  payment  is  essential. 

Sickness  or  other  inability  to  comply  with  the  terms  of  pay- 
ment offers  no  excuse.  If  the  insurer  accepts  the  payment  of 
the  premium  after  it  is  due,  the  breach  will  be  waived. 

Suicide.  —  If  the  policy  contains  no  express  stipulation  to  the 
contrary,  the  insurance  company  is  liable  on  a  policy  if  the  person 
insured  commits  suicide,  in  case  a  third  party  is  the  beneficiary. 
If  the  insured  is  the  beneficiary,  the  rule  will  be  otherwise.  The 
policy  frequently  contains  a  clause  exempting  the  company  from 
liability  if  the  insured  commits  suicide  within  a  certain  time. 

A  policy,  payable  to  the  insured,  his  executors,  administrators,  or 
assigns,  contained  no  stipulation  against  suicide.  The  insured  killed  him- 
self while  sane.  The  court  held  that  there  could  be  no  recovery  on  the 
policy,  as  being  contrary  to  public  policy  and  opposed  to  sound  morality. 

—  Ritter  v.  Mutual  Life  Ins.  Co.,  169  U.  S.  139. 

It  was  held  that  suicide  while  sane  is  no  defense  to  an  action  on  a  policy 
of  life  insurance  payable  to  third  persons  as  beneficiaries,  where  there  is  no 
stipulation  against  suicide  in  the  policy,  since  the  beneficiaries  have  acquired 
vested  rights  in  the  policy  which  cannot  be  defeated  by  the  wrongful  act 
of  the  insured.  —  Patterson  v.  Life  Ins.  Co.,  100  Wis.  118. 

When  the  exemption  does  not  expressly  state  that  the 
company  shall  not  be  liable  whether  the  insured  be  sane  or 
insane,  the  suicide  clause  does  not  vitiate  the  pohcy  if  the  suicide 
is  committed  while  the  person  is  insane.  If  the  clause  contains 
these  words,  "it  is  vitiated  in  case  of  suicide  under  any  con- 
ditions"; then,  if  the  insured  dies  by  suicide,  sane  or  insane,  the 
poHcy  becomes  null  and  void. 

A  life  insurance  poHcy  provided  that  it  should  be  null  and  void  if  the 
insured  died  by  suicide,  "sane  or  insane."    The  company  pleaded  that  he 


250  INSURANCE 

died  from  a  pistol  wound,  inflicted  by  his  own  hand,  and  that  he  intended 
inflicting  such  a  wound  to  destroy  his  own  Hfe.  Held,  that  the  policy  was 
avoided  even  though  the  deceased  was  of  unsound  mind  and  unconscious  of 
his  acts  when  he  inflicted  the  wound. 

—  Bigelow  V.  Life  Insurance  Co.,  93  U.  S.  284. 

Notice  of  Death.  —  In  life  insurance  the  company  generally 
requires  immediate  notice  of  death  and  due  proof  that  the  person 
insured  is  dead. 

QUESTIONS 

1.  In  its  simplest  form,  what  is  life  insurance? 

2.  What  are  the  different  forms  of  life  insurance  agreements? 

3.  When  may  a  person  be  said  to  have  an  insurable  interest  in  the  life 
of  another? 

.  4.   Has  a  creditor  an  insurable  interest  in  the  life  of  a  debtor? 

5.  Has  a  nephew  an  insurable  interest  in  the  life  of  an  uncle? 

6.  What  are  the  rules  concerning  an  insurable  interest  at  the  time  the 
policy  is  taken  out  and  subsequently? 

7.  How  are  premiums  on  life  insurance  graded? 

8.  How  is  the  amount  of  the  premium  determined? 

9.  How  does  the  concealment  of  a  material  fact  affect  a  contract 
of  life  insurance? 

10.  What  will  render  a  life  insurance  contract  void? 

11.  How  are  answers  to  questions  in  the  application  considered? 

12.  Are  hfe  insurance  policies  uniformly  the  same?     Explain. 

13.  What  are  the  usual  premium  provisions  in  a  policy? 

14.  Under  what  conditions  is  an  insurance  company  liable  if  the  person 
insured  commits  suicide? 

5.    MARINE  INSURANCE 

Definition.  —  Marine  insurance  is  a  contract  by  which  the 
insurer  agrees  to  indemnify  the  insured  against  certain  perils  or 
risks  to  which  his  ships,  cargo,  and  profits  may  be  exposed 
during  a  certain  trip  or  during  a  specified  time. 

Insurable  Interest.  —  The  rules  governing  this  class  of  insur- 
ance closely  follow  the  laws  of  fire  insurance.  The  person 
procuring  the  policy  must  have  an  insurable  interest  in  the 
property  insured.  The  owner  always  has  an  insurable  interest, 
even  though  the  property  has  been  chartered  to  a  person  who 
agrees  to  pay  its  value  in  case  of  loss.  The  charterer  also  has  an 
insurable  interest  in  the  ship.  Practically  the  same  rules  apply 
to  the  insurable  interest  here  as  in  fire  insurance. 


MARINE  INSURANCE  251 

Effect  of  Fraud.  —  The  requirement  of  good  faith  between  the 
parties  is  even  greater  in  marine  insurance  than  in  any  other 
branch  of  insurance.  The  reason  for  this  is  that  the  insured  has 
every  opportunity  to  know  all  of  the  facts  and  the  insurer  but 
limited  opportunity  to  determine  them.  A  concealment  of  a 
material  fact  either  innocently  or  fraudulently  avoids  the 
contract. 

Misrepresentation.  —  So  a  material  misrepresentation  of  a 
fact,  whether  innocently  or  fradulently  made,  avoids  the  con- 
tract.   The  rule  is  even  more  strict  here  than  in  fire  insurance, 

A  policy  of  marine  insurance  was  obtained  at  and  from  Genoa.  The  load 
was  put  on  at  Leghorn,  bound  for  Dublin,  but  the  vessel  put  in  at  Genoa  and 
had  been  there  about  five  months  before  sailing.  Richardson  contended  that 
the  policy  was  vitiated  because  of  the  nondisclosure  to  the  insurer  that  the 
vessel  was  not  loaded  at  Genoa.  Held,  that  Hodgson  could  not  recover.  The 
concealment  of  the  port  of  loading  vitiated  the  policy. 

—  Hodgson  V.  Richardson,  1  W.  Black  (Eng.)  463. 

Warranty.  —  A  warranty,  as  in  fire  insurance,  must  be  strictly 
performed.  In  marine  insurance  there  are  three  imphed  war- 
ranties which  are  understood  in  every  contract.  They  are  in 
respect  to  seaworthiness,  deviation,  and  legality. 

Seaworthiness.  —  There  is  implied  the  warranty  that  the 
ship  is  seaworthy  at  the  time  of  the  commencement  of  the  risk.  A 
ship  is  seaworthy  when  reasonably  fit  to  perform  the  services 
and  encounter  the  ordinary  perils  incident  to  the  voyage.  This 
means  that  the  ship  shall  be  stanch,  properly  rigged,  and  provided 
with  a  competent  master  and  a  sufficient  number  of  seamen. 

The  steamship  West  was  insured  for  a  voyage  from  Montreal  to  Halifax. 
At  the  time  of  starting  the  voyage  there  was  a  defect  in  the  boiler  of  the 
vessel  which  was  not  apparent  in  a  river,  but  which  disabled  the  vessel  when 
she  got  into  salt  water.  It  was  held  that  the  implied  warranty  of  seaworthi- 
ness had  not  been  complied  with  as  the  vessel  sailed  with  a  defect  which 
rendered  her  unseaworthy  for  the  complete  voyage. 

—  Quebec  Marine  Ins.  Co.  v.  Com.  Bank,  7  Moore,  P.C.N.S.  (Eng.)  i. 

Deviation.  —  The  second  implied  warranty  is  that  there  shall 
be  no  voluntary  deviation  or  departure  from  the  course  fixed  by 
mercantile  usage,  for  the  voyage  contemplated  by  the  poHcy; 
and  also  that  there  shall  be  no  unreasonable  delay  in  commencing 
or  making  the  voyage. 


252  INSURANCE 

s 
A  deviation  is  justified  when  caused  by  circumstances  over 

which  neither  the  owner  nor  master  had  any  control,  as  when 

forced  from  the  course  by  stress  of  weather,  a  mutinous  crew,  etc. 

If  the  master  of  a  vessel  which  has  been  insured,  in  departing  from  the 
usual  course  of  the  voyage  from  necessity,  because  of  leaking  of  the  vessel, 
acts  in  good  faith  and  according  to  his  best  judgment,  and  has  no  other 
object  than  to  conduct  the  vessel  by  the  safest  and  shortest  course  to  the 
port  of  destination,  the  insurance  will  not  be  forfeited. 

—  Turner  v.  Insurance  Co.,  25  Maine  515. 

Legality.  —  The  third  implied  warranty  is  that  the  voyage 
shall  be  legal,  both  in  its  nature  and  in  the  manner  in  which  it 
is  prosecuted.  Smuggling  voyages  and  trading  trips  to  an 
enemy's  port  are  cases  of  illegal  voyage. 

Losses.  —  The  loss  may  be  total,  in  which  case  the  whole 
insurance  is  ordinarily  recoverable;  or  it  may  be  partial,  and 
then  only  a  pro  rata  part  can  be  recovered.  When  the  loss  is 
total,  it  may  be  an  actual  total  loss  or  a  constructive  total  loss. 
An  actual  total  loss  occurs  when  the  subject  insured  wholly 
perishes,  as  when  a  vessel  is  so  completely  wrecked  that  it  can 
not  be  repaired. 

When  a  policy  of  insurance  upon  a  vessel  is  against  "actual  total  loss 
only,"  if  the  vessel  is  afloat  or  it  is  practicable  to  put  her  afloat,  or  if  she  is 
capable  of  being  repaired,  at  any  expense,  it  is  not  such  a  total  loss. 

—  Carr  v.  Insurance  Co.,  109  N.  Y.  504. 

A  constructive  total  loss  occurs  when  the  article  insured  is  so 
far  damaged  or  lost  that  it  can  not  be  reclaimed  or  repaired, 
except  at  a  greater  cost  than  its  value.  For  example,  a  vessel 
may  be  sunk  in  shallow  water,  but  the  cos.t  of  raising  it  would 
be  greater  than  it  is  worth. 

An  insured  vessel  was  thrown  on  the  rocks,  her  rudder  and  keel  torn  off, 
one  side  beaten  in  so  that  the  cargo  of  salt  was  washed  out  and  the  vessel 
was  in  danger  of  destruction.  Held  that  the  vessel  was  a  constructive  total 
loss.  — King  V.  Middletown  Ins.  Co.,  1  Conn.  184. 

The  rule  adopted  in  some  jurisdictions  is,  that  if  the  property 
insured  by  a  marine  insurance  policy  is  damaged  to  such  an 
extent  that  its  value  is  reduced  one  half  or  more;  that  is,  if  there 
is  a  one-half  loss  or  more,  the  person  insured  may  abandon  the 
property  as  a  constructive  total  loss,  and  claim  the  full  amount 


CASUALTY  INSURANCE  253 

of  insurance.  Notice  of  the  abandonment  must  be  given  the 
insurers  so  that  they  may  take  measures  to  claim  the  property 
and  avail  themselves  of  whatever  may  be  saved. 

General  Average.  —  From  very  early  times,  it  has  been  the 
custom  where  goods  were  thrown  overboard  to  save  the  vessel 
from  sinking,  for  the  owners  of  goods  on  board  and  the  owners  of 
the  vessel  to  share  proportionately  the  loss  caused  by  sacrificing 
certain  goods  that  the  vessel  and  a  portion  of  the  cargo  might  be 
saved. 

QUESTIONS 

1.  What  is  marine  insurance? 

2.  Has  a  person  who  hires  a  ship  for  the  season  an  insurable  interest? 

3.  Will  a  misrepresentation  innocently  made  affect  a  marine  policy? 
Explain. 

4.  What  are  the  three  implied  warranties  in  marine  insurance? 

5.  Explain  the  terms  ''total  loss"  and  "partial  loss." 

6.  When  is  a  loss  said  to  be  a  "constructive  total  loss"? 

7.  What  is  the  meaning  of  the  term  "general  average"? 

6.   CASUALTY  INSURANCE 

Definition.  —  Casualty  insurance  is  an  indemnity  against  loss 
resulting  from  bodily  injury  or  the  destruction  of  certain  kinds 
of  property.  It  may  be  accident  insurance,  which  is  an  indemnity 
against  personal  injury  by  accident,  or  it  may  be  one  of  the 
numerous  classes  of  insurance  that  have  sprung  up  within  the 
past  few  years,  granting  indemnity  against  almost  every  con- 
ceivable form  of  catastrophe.  Among  these  special  forms  of 
casualty  insurance  may  be  mentioned  plate  glass,  boiler,  employ- 
ers' liability,  fidelity,  credit,  title,  and  automobile  insurance. 

Accident  Insurance.  —  Accident  insurance  is  a  branch  of  hfe 
insurance,  the  latter  insuring  against  death  by  any  cause,  while 
the  former  insures  against  death  or  injury  caused  by  accident. 
This  class  of  insurance  usually  provides  a  certain  payment  in 
case  of  accidental  death,  a  weekly  indemnity  for  either  permanent 
or  total  disabihty  by  reason  of  accident,  and  a  fixed  sum  for  such 
permanent  injury  as  the  loss  of  one  or  b«th  of  the  hands,  feet,  or 
eyes.  An  accident  in  this  sense  is  an  unforeseen  event  which  re- 
sults in  injury  to  one's  person.    Being  thrown  from  an  automobile 


254  INSURANCE 

in  a  collision  and  being  struck  by  a  falling  timber  are  accidental 

injuries. 

While  the  injured  was  pitching  hay,  the  handle  of  the  fork  slipped 
through  his  hands  and  struck  him  in  the  body,  inflicting  an  injury  which 
caused  inflammation  resulting  in  his  death.  Held,  that  the  death  was  the 
result  of  an  accident. 

—  North  American  Insurance  Co.  v.  Burroughs,  69  Pa.  State  43. 

Unless  the  policy  expressly  excludes  death  by  poisoning,  the 
accident  policy  is  held  to  cover  death  due  to  the  accidental 
taking  of  poison. 

Employers'  Liability  Insurance.  —  Employers'  liability  insur- 
ance is  a  class  of  protection  afforded  to  employers  engaged  in 
manufacturing  or  other  business,  against  liability  for  damages 
for  personal  injuries  caused  by  the  negligence  of  the  employer  or 
his  servants.  One  occasion  for  this  class  of  insurance  has  arisen 
because  of  the  fact  that  when  an  employee  in  a  factory  is  killed 
by  reason  of  some  faulty  machinery  his  survivors  may  sue  the 
employer  for  damages.  The  insurance  company  in  which  the 
employer  has  insured  this  risk  defends  the  case,  and  if  the 
proprietor  is  defeated,  the  insurance  company  pays  the  loss. 
(See  Important  Statutes,  page  379.) 

Fidelity  Insurance.  —  Fidelity  or  guaranty  insurance  is  a  con- 
tract by  which  an  employer  is  insured  against  loss  by  the  fraud 
or  dishonesty  of  his  employees.  It  is  in  fact  a  guaranty  of  the 
honesty  of  an  employee.  Fidelity  insurance  companies  issue 
bonds  guaranteeing  the  faithful  performance  of  contracts  as  well, 
and  in  all  cases  in  which  bonds  are  required  it  is  now  the  common 
practice  to  purchase  them  of  such  a  company. 

Credit  Insurance.  —  Credit  insurance  protects  merchants  and 
tradesmen  from  loss  through  the  insolvency  or  dishonesty  of 
their  customers.  For  a  certain  premium  the  insurance  company 
guarantees  the  merchant  against  bad  debts.  The  merchants 
must  usually  bear  a  certain  small  per  cent,  and  all  losses  over 
that  amount  are  paid  by  the  insurance  company. 

Title  Insurance.  —  Title  insurance  is  a  guaranty  to  the  owner 
of  real  property  that  his  title  is  clear.  It  is  an  insurance  against 
defects  in  the  title  to  the  property  insured,  and  in  case  of  loss 
by  reason  of  liens  or  incumbrances  prior  to  the  interest  of  the 
insured,  the  company  indemnifies  him. 


CASUALTY  INSURANCE  255 

Plate  Glass  Insurance.  —  Plate  glass  insurance  is  another 
branch  of  casualty  insurance  frequently  employed.  Many  of 
the  larger  stores  and  offices  have  plate  glass  fronts  representing 
a  large  investment,  and  to  avoid  the  danger  of  loss  the  owners 
employ  insurance  companies  to  take  the  risk  of  the  breaking  of 
these  windows.  A  certain  premium  is  charged  by  the  companies 
assuming  this  risk,  the  premium  being  based  upon  the  cost  price 
of  the  windows. 

Elevator  Insurance.  —  Elevator  insurance  consists  of  a  con- 
tract which  covers  the  risk  incidental  to  the  use  of  elevators, 
including  both  the  damage  to  the  elevators  themselves  and  to 
persons  or  property  that  may  be  injured  by  the  use  of,  or  by 
accident  occurring  to,  such  elevators. 

Steam  Boiler  Insurance.  —  Because  of  the  frequent  explosions 
occurring  from  th,e  use  of  steam  boilers  the  damage  caused  not 
only  to  the  boilers  themselves  but  to  surrounding  property  is 
insured  under  this  head.  This  insurance  does  not  cover  a  loss 
by  fire,  even  though  it  be  caused  by  the  explosion,  but  does  cover 
the  injury  to  persons  or  property  from  such  cause. 

Health  Insurance.  —  Some  companies  issue  insurance  policies 
against  sickness.  These  policies  name  a  list  of  diseases,  and  in 
the  event  of  sickness  caused  by  any  one  of  the  diseases  named  in 
the  policy  the  insured  receives  a  stated  indemnity,  usually  pay- 
able weekly.  Sometimes  the  poHcy  covers  doctors'  bills,  hospital 
expenses,  and  loss  of  earnings. 

Burglary  Insurance.  —  This  is  a  form  of  casualty  insurance, 
and  as  the  name  implies,  it  is  insurance  against  loss  of  property 
by  theft.  It  applies  only  to  theft  committed  by  breaking  into 
the  building  where  the  property  insured  is  kept. 

Automobile  Insurance.  —  Automobile  insurance  has  become 
a  very  important  branch  of  the  insurance  business.  What  is 
known  as  the  "full  cover"  poKcy  insures  against  loss  resulting 
from  fire  or  explosion,  damage  by  fire  to  personal  effects  in  the 
car  or  to  other  property  set  on  fire  by  the  burning  car,  trans- 
portation accidents,  theft,  collisions,  loss  of  Kfe  or  injury  to 
occupants  of  the  car  and  legal  liability  for  expenses  in  connection 
therewith,  and  loss  of  life  or  injury  to  others  and  legal  liability  for 
expenses  in  connection  therewith. 


256  INSURANCE 

The  companies  will,  as  a  rule,  issue  policies  covering  any 
single  risk  just  mentioned. 

Other  Insurance  Contracts.  —  Almost  every  risk  to  which  one 
may  be  subjected  can  be  covered  by  insurance.  Other  common 
forms  are:  tornado  insurance,  burial  insurance,  rent  insurance, 
strike  insurance,  and  the  insurance  of  property  while  in  the 
process  of  transportation  by  mail  or  otherwise, 

QUESTIONS 

1.  What  is  casualty  insurance? 

2.  What  are  the  different  forms  of  casualty  insurance? 

3.  Is  accident  insurance  life  insurance?    Explain. 

4.  What  are  the  usual  indemnity  provisions  in  an  accident  policy? 

5.  What  risk  does  employers'  liability  insurance  cover? 

6.  Why  is  fidelity  insurance  considered  necessary? 

7.  What  is  the  purpose  of  credit  insurance? 

8.  To  what  class  of  property  does  title  insurance  apply? 

9.  What  is  plate  glass  insurance? 

10.  What  risk  does  elevator  insurance  cover? 

11.  What  loss  does  steam  boiler  insurance  cover? 

12.  What  is  the  "full  cover"  policy  in  automobile  insurance? 

13.  What  are  the  main  provisions  of  a  health  insurance  contract? 

14.  Burglar  insurance  is  protection  against  what  losses? 

15.  Mention  other  kinds  of  casualty  insurance. 


IMPORTANT  POINTS 

The  principal  kinds  of  insurance  are  fire,  life,  marine,  and  casualty. 

The  two  principal  kinds  of  insurance  companies  are  mutual  com- 
panies and  stock  companies. 

A  mutual  company  is  an  association  of  persons  who  insure  each 
other.  Theoretically  an  assessment  is  levied  on  each  policy  holder 
whenever  a  loss  occurs.  In  practice,  the  policyholders  pay  regular 
premiums  and  any  surplus,  after  payment  of  losses  and  administra- 
tion expenses,  is  returned  in  the  form  of  dividends. 

A  stock  company  is  a  corporation  which  charges  a  fixed  rate  for 
insurance  and  out  of  the  fund  thus  created  pays  losses. 

No  one  has  an  insurable  interest  in  property  unless  its  destruc- 
tion would  cause  him  financial  loss. 

The  risk  is  the  event  insured  against. 

An  insurable  interest  is  the  first  requisite  in  insurance  contracts. 

A  fire  insurance  policy  may  be  canceled  by  either  party  by  giving 
five  days'  notice. 


IMPORTANT  POINTS         ,  257 

Fire  insurance  contracts  are  not  assignable.  They  may  be  trans- 
ferred by  the  company  on  application  from  the  insured. 

A  coinsurance  clause  in  a  fire  insurance  policy  provides  that,  in 
return  for  a  reduced  rate,  the  insured  must  keep  his  property  insured 
up  to  a  certain  percentage  of  its  value,  usually  80  per  cent. 

Answers  to  questions  and  statements  mad«  by  the  insured  which 
are  included  in  the  policy  amount  to  warranties. 

False  representations  or  misstatements  which  have  any  material 
efifect  on  the  policy  render  it  void. 

The  contract  of  fire  insurance  is  binding  as  soon  as  agreed  to, 
even  before  the  policy  is  written. 

The  fire  insurance  policy  covers  loss  resulting  indirectly  from  the 
fire,  as  loss  caused  by  water  in  putting  out  the  fire. 

The  conditions  named  in  an  insurance  policy  are  a  part  of  the 
contract  and  binding  upon  the  insured  and  the  insurer. 

In  fire  insurance,  the  hour  and  minute  that  the  contract  begins 
and  ends  is  stated. 

Insurance  companies  may  reinsure  property  on  which  they  have 
issued  a  policy. 

In  case  of  fire,  officers  of  the  insurance  company,  known  as 
adjusters,  usually  inspect  the  ruins,  appraise  the  damage,  and  name 
the  amount  which  the  company  will  pay.  If  the  insured  is  not  satis- 
fied he  may  bring  suit  in  court. 

When  the  policy  contains  a  rebuilding  clause,  the  company  may 
replace  or  repair  the  property  in  lieu  of  paying  damages. 

Any  change  of  ownership  of  insured  property  renders  the  policy 
void  unless  a  transfer  of  the  policy  is  made  by  the  insurance  company. 

An  insurance  agent  is  one  who  represents  insurance  companies. 

An  insurance  broker  is  one  who  solicits  and  places  insurance  with 
various  companies.    He  is  the  agent  of  the  insured. 

Insured  dwelling  property  should  not  be  allowed  to  remain 
unoccupied  more  than  ten  days  at  one  time. 

A  renewal  receipt  serves  to  renew  a  fire  insurance  policy. 

Any  pecuniary  dependency  amounts  to  an  insurable  interest  in 
a  life. 

Relationship  does  not  give  an  insurable  interest  in  a  life. 

In  an  incontestable  policy,  the  company  agrees  that  after  a  certain 
time  it  shall  not  be  forfeited  for  any  cause  except  nonpayment  of 
premiums. 

Many  secret  societies  provide  insurance  for  their  members,  on 
the  mutual  or  assessment  plan. 

The  beneficiary  of  a  policy  has  a  rested  right  of  which  he  cannot 
be  deprived  without  his  consent,  unless  the  policy  contains  a  claus 
reserving  to  the  insured  the  right  to  change  the  beneficiary  at  will. 
In  either  case  the  consent  of  the  insurer  is  necessary. 


258  INSURANCE 

Concealment  and  misrepresentation,  if  intentional,  will  render 
a  life  insurance  policy  void. 

Life  insurance  policies  usually  contain  restrictions  as  to  travel 
and  occupation. 

Innocent  concealment  of  a  material  fact  renders  a  marine  policy 
void. 

Willful  deviation  from  the  regular  route  or  voyage  will  render  a 
marine  policy  void. 

The  three  implied  warranties  in  marine  insurance  contracts  are: 

1.  That  the  vessel  is  seaworthy. 

2.  That  there  will  be  no  deviation  from  the  usual  course. 

3.  That  the  voyage  shall  be  for  legal  purposes. 

In  case  of  emergency  the  captain  of  a  vessel  may  throw  overboard 
part  of  the  cargo  and  the  rule  of  general  average  will  apply. 

Casualty  insurance  is  an  indemnity  against  loss  resulting  from 
accidents. 

TEST  QUESTIONS 

1.  Must  the  contract  of  insurai>ce  be  in  writing?    Explain. 

2.  What  insurable  interest  is  sufficient  to  uphold  a  fire  insurance 
policy? 

3.  If  Green  made  a  contract  to  sell  his  house  to  Young,  would  Young 
have  an  insurable  interest  in  the  house? 

4.  Would  taking  poison  by  mistake  be  an  accidental  injury  under  an 
accident  insurance  policy? 

5.  Give  three  illustrations  of  persons  who  may  have  an  insurable 
interest  in  the  life  of  another  person. 

6.  On  October  10,  you  insure  your  house  for  a  period  of  three  years, 
paying  the  premium  in  advance.  On  December  i,  you  sell  the  house  to 
Joseph  Moore.    What  would  you  do  with  the  policy  of  insurance? 

7.  What  supervision  is  exercised  over  insurance  companies? 

8.  Would  a  builder  who  had  contracted  to  erect  a  large  apartment 
house  have  an  insurable  interest  in  the  material  and  building  in  the  course 
of  construction?     Explain. 

,9.  (a)  When  does  a  fire  insurance  contract  become  binding  on  the 
insurer?  (b)  When  does  a  life  insurance  contract  become  binding  on  the 
insurer? 

10.   Who  may  conduct  an  insurance  business? 

CASE  PROBLEMS 

Give  the  decision  and  the  principle  of  law  involved  in  each  case. 
I.   Dyer  owns  a  house  and  lot  which  is  mortgaged  to  Perkins  for  $1000. 
Teets  has  a  lease  of  the  property  for  one  year,  and  Dunn  has  agreed  with 


CASE  PROBLEMS  259 

Dyer  to  purchase  the  property,  Dyer  having  given  him  a  contract  whereby 
he  is  to  deed  it  to  Dunn  as  soon  as  he  has  paid  $1000  on  the  purchase  price. 
Which  of  the  above  parties  have  an  insurable  interest  in  the  property? 

2.  Did  Dyer,  the  owner  in  the  above  case,  lose  his  insurable  interest 
in  the  house  and  lot  when  he  mortgaged  it  to  Perkins?  Did  he  lose  his 
insurable  interest  when  he  gave  the  contract  to  Dunn? 

3.  Moore  goes  to  Emery,  an  insurance  agent,  and  asks  him  to  insure 
his  house  for  $5000,  giving  him  a  description  of  the  property.  Emery 
agrees  to  insure  it  for  one  year  and  states  that  the  premium  will  be  $12. 
Emery  has  authority  to  bind  the  insurance  company.  Moore's  house  burns 
before  the  policy  of  insurance  is  delivered  to  him.     Can  he  recover? 

4.  If,  in  the  above  case,  Moore's  house  had  been  set  on  fire  twice  within 
one  month  previous  to  applying  for  the  insurance,  would  the  fact  that  this 
information  was  not  imparted  to  Emery  affect  the  contract? 

5.  Rice,  upon  applying  for  insurance  upon  a  warehouse,  is  asked  the 
distance  of  the  warehouse  from  the  railroad,  as  the  insurance  company  will 
not  insure  such  buildings  within  30  feet  of  the  track.  Rice,  believing  his 
answer  to  be  true,  states  that  the  warehouse  is  about  40  feet  from  the  track, 
as  the  party  from  whom  he  has  recently  purchased  the  building  stated  that 
to  be  the  distance  of  the  building  from  the  track.  The  building,  in  fact, 
was  less  than  25  feet  from  the  track.  Would  this  affect  the  policy? 

6.  In  a  policy  of  insurance  in  which  the  application  was  attached  to 
and  made  a  part  of  the  policy,  the  party  obtaining  the  insurance  has  repre- 
sented that  the  building  insured  was  brick  for  the  first  two  stories  and  frame 
for  the  third  story,  when,  in  fact,  the  building  was  brick  for  only  the  first 
story  and  the  remaining  stories  were  frame.    Did  this  avoid  the  policy? 

7.  Hall  insured  his  household  furniture  located  on  the  first  floor  of  a 
building,  other  tenants  occupying  the  upper  floors.  Fire  broke  out  in  the 
upper  floors  and  Hall's  goods  were  damaged  by  smoke  and  water,  but  the 
fire  did  not  reach  him.  Can  Hall  recover  the  damage  under  his  fire  insur- 
ance policy? 

8.  If,  in  the  above  case,  Hall  had  moved  his  goods  out  to  avoid  their 
being  ruined  by  water,  and  temporarily  placed  them  across  the  street  until 
a  place  could  be  found  to  store  them,  and  about  an  hour  after  they  were 
placed  there  a  certain  part  of  the  goods  were  stolen,  could  the  value  of  the 
stolen  goods  be  recovered  under  the  fire  insurance  policy? 

9.  If,  in  the  above  case,  the  remainder  of  the  goods  left  in  the  street 
were  damaged  by  rain  which  came  just  after  they  were  removed  from  the 
building,  could  this  damage  be  recovered  under  the  fire  insurance  policy? 


26o  INSURANCE 

10.  If,  in  problem  7,  the  fire  had  been  caused  by  hghtning  and  Hall's 
goods  had  been  destroyed  by  the  fire,  could  he  have  recovered,  nothing 
having  been  said  in  the  policy  about  lightning? 

11.  Evans  insures  his  house  and  barn,  and  in  the  policy  there  is  a  con- 
dition that  the  insurer  will  be  liable  for  fire  caused  by  lightning.  Lightning 
strikes  his  barn,  tearing  off  the  roof  and  greatly  damaging  it,  but  the  barn 
does  not  catch  fire.  Can  Evans  recover  the  damage  from  the  insurance 
company? 

12.  If,  in  the  above  case,  Evans's  barn  had  been  set  on  fire  by  an  incen- 
diary, could  he  recover  the  damages  from  the  insurance  company? 

13.  If  the  insured  owner,  during  a  period  of  temporary  insanity,  sets 
fire  to  the  barn  himself,  could  he  recover  from  the  insurance  company? 

14.  Waters  insures  his  household  furniture  while  living  in  a  certain  house 
on  Edmunds  Street.  Within  a  month  after  taking  out  such  insurance,  he 
moves  about  one  block  away  to  a  house  on  Meigs  Street.  Both  of  the 
houses  are  frame  dwellings,  and  there  is  apparently  no  difference  in  the 
hazard.  The  policy  contains  a  clause  that  if  the  property  is  removed  with- 
out the  consent  of  the  insurer  the  policy  is  no  longer  of  any  effect.  Shortly 
after  moving,  Waters'  furniture  burns.     Can  he  recover  from  the  company? 

15.  If  Springer  takes  out  a  fire  insurance  poHcy  of  $1000  on  a  house 
worth  $2000  and  the  house  burns,  what  amount  can  he  recover?  If  the 
insurance  policy  is  for  $3000  and  the  house  is  worth  $2000,  how  much  can  he 
recover? 

16.  Levitt  insures  his  house  and  then  sells  it.  The  policy  of  insurance 
contains  the  alienation  clause.  Shortly  after  the  house  is  sold  it  burns. 
Can  Levitt  recover  under  the  policy? 

17.  If,  in  the  above  case,  Levitt  had  mortgaged  instead  of  sold  his 
house,  could  he  have  recovered  under  the  policy? 

18.  If  Levitt,  upon  selling  the  property  in  problem  16,  had  assigned 
the  policy  to  the  purchaser  without  obtaining  the  consent  of  the  company, 
could  the  purchaser  recover  under  the  policy  in  case  of  fire? 

19.  Taylor  takes  out  an  insurance  policy  upon  the  life  of  Henderson, 
his  business  partner,  who  owes  him  $10,000.     After  the  policy  has  been 
running  about  two  years,  Taylor  and  Henderson  dissolve  partnership,  and 
Henderson  pays  Taylor  all  that  he  owes  him;    but  Taylor  continues  the- 
policy  upon  Henderson's  life.    Is  it  valid? 

20.  Aller  insures  his  own  life  in  favor  of  his  wife.  After  two  years  he 
obtains  a  divorce  from  her,  then  marries  another,  and,  wishing  to  make  her 
the  beneficiary  under  his  policy,  seeks  to  change  it.     Can  this  be  done? 


CASE  PROBLEMS  261 

21.  In  an  application  for  a  life  insurance  policy,  Ford,  the  applicant, 
was  asked  if  any  of  his  brothers  or  sisters  had  died  of  consumption.  No 
answer  was  given.  Ford  had,  in  fact,  lost  two  brothers  by  this  disease.  The 
policy  was  issued.    Would  the  concealment  render  it  void? 

22.  Dwight  applied  to  a  life  insurance  company  for  a  policy  of  insurance 
upon  his  life.  He  stated  in  answer  to  a  question  that  he  was  engaged  in 
running  a  grocery,  while  in  fact  he  was  a  farmer.  One  occupation  was  not 
considered  a  greater  hazard  than  the  other  by  the  insurance  company. 
Would  this  affect  the  policy? 

23.  If,  in  the  above  case,  the  answers  of  Dwight  had  been  included  in 
his  policy  and  made  a  part  of  it,  would  the  misstatement  affect  the  policy? 

24.  An  insurance  policy  contains  a  stipulation  that  the  company  will 
not  be  liable  if  the  insured  commits  suicide,  and  he  dies  from  the  effects  of  a 
revolver  bullet  fired  by  himself  while  insane.  Is  the  company  liable  on  the 
policy? 

25.  If  the  stipulation  in  the  policy  had  been  that  the  company  shall 
not  be  liable  if  death  is  caused  by  suicide  committed  when  either  sane  or 
insane,  would  the  company  have  been  liabfecin  the  above  case? 

26.  Richardson  loads  his  vessel  with  aterchandise  at  Albany,  runs  it 
down  the  Hudson  River  to  New  York,  and  ^%ere  obtains  a  marine  policy  on 
the  ship  and  cargo  at  and  from  New  York  to  London.  He  does  not  state 
anything  in  reference  to  the  loading  at  Albany.    Would  this  affect  the  policy? 

27.  Elliott  took  out  an  accident  policy  insuring  him  against  "bodily 
injuries  sustained  through  external  violence  and  accidental  means."  He 
was  killed  by  accidentally  drinking  poison.    Was  the  company  liable? 

28.  Watson  calls  at  the  office  of  a  duly  authorized  agent  of  an  insurance 
company  and  asks  the  agent  to  insure  his  house  for  $3000.  The  agent  agrees 
to  write  a  policy  for  the  amount.  One  day  later  the  house  is  destroyed  by 
fire.  Watson  has  not  received  the  policy  nor  paid  the  premium.  Will 
Watson  be  able  to  reco  /er  from  the  insurance  company?     Explain. 

29.  Carter  insured  his  house  in  the  Mutual  Insurance  Company.  At 
the  time  arrangements  w^ere  made  for  issuing  the  policy  Carter  told  the  agent 
of  the  company  that  the  house  was  200  feet  from  any  barn  or  stable.  Later 
the  house  was  destroyed  by  fire  and  the  insurance  company  refused  to 
pay  the  policy  on  the  ground  that  the  house  was  only  195  feet  from  a  stable. 
Has  the  company  the  right  to  refuse  payment?     Explain. 

30.  Doran  insured  his  life,  naming  his  wife  as  beneficiary.  When  Doran 
died  he  was  heavily  indebted  to  the  Fourth  National  Bank.  His  widow 
collected  the  insurance  and  the  bank  sued  her  to  have  the  insurance  money 
applied  to  the  payment  of  Doran's  debt.    Was  the  bank  entitled  to  recover? 


REAL  PROPERTY 

I.    IK  GENERAL 

Definition.  —  Real  property  or  real  estate  is  defined  as  land 
and  whatever  is  affixed  to  and  issuing  out  of  the  land.  It  will 
therefore  be  seen  that  it  includes  not  only  the  land  itself,  but 
buildings  erected  thereon,  as  well  as  trees  growing  therefrom  and 
oils  and  minerals  included  within  the  land  extending  downward 
to  the  center  of  the  earth. 

Crops  which  are  planted  each  year  and  which  are  considered 
the  fruits  of  labor,  are  personal  property.  If,  however,  the  owner 
of  land  and  of  the  cultivated  crops  thereon  sells  this  land,  these 
crops  will  go  to  the  purchaser  unless  they  are  specially  reserved 
by  a  clause  in  the  deed  or  in  some  other  writing  executed  simul- 
taneously with  it. 

Rights  in  Streams  anc^^.  Lakes.  —  In  the  case  of  navigable 
waters,  the  title  of  the  watjjr  and  the  land  beneath  is  held  by  the 
state  and  adjoining  ownei^j  have  no  greater  rights  therein  than 
other  people.    Their  ownership  ceases  at  the  water's  edge. 

In  the  case  of  non-navigable  waters,  the  adjoining  owners 

have  title  thereto  to  the  center  of  the  stream  or  lake  and  have  the 

exclusive  right  to  use  and  enjoy  the  waters  over  their  lands.    They 

are  not  permitted  to  change  the  direction  or  interfere  with  the 

flow  of  running  streams  to  the  injury  of  others. 

A  grantee  from  the  United  States,  of  land  in  Missouri  on  the  banks  of  a 
navigable  river,  such  as  the  Missouri  River,  takes  only  to  the  water's  edge 
and  not  to  the  middle  of  the  stream.  The  owner  of  the  bank  is  not  the  owner 
of  an  island  which  springs  up  in  the  river,  no  matter  whether  it  be  on  one  side 
or  the  other  of  the  center  of  the  stream.  —  Cooley  v.  Golden,  117  Mo.  33. 

Ice  belongs  to  the  owner  of  the  land  over  which  it  forms, 
except  when  it  is  on  navigable  waters,  in  which  case  it  belongs 
to  the  one  first  appropriating  it. 

When  the  water  of  a  flowing  stream,  not  navigable,  freezes  while  in  its 
natural  channel,  the  ice  attached  to  the  soil  constitutes  a  part  of  the  land, 
and  belongs  to  the  owner  of  the  bed  of  the  stream,  who  has  a  right  to  remove 
it.  A  person  who  owns  the  land  on  one  side  and  cuts  the  ice  beyond  the 
center  of  the  stream  is  liable  to  the  owner  of  the  land  lying  under  the  ice 
which  was  taken.  —  State  v.  Pottme.yer,  t^t,  Ind.  402. 

262 


ESTATES  IN  LAND  263 

The  owner  of  the  bank  along  the  Kansas  River,  a  navigable  river,  does 
not  own  to  the  center  of  the  stream,  neither  does  he  own  the  ice  which  is 
formed  on  the  stream  adjacent  to  his  land  without  first  taking  possession  of 
it.  —  Wood  V.  Fowler,  26  Kans.  682. 

Corporeal  and  Incorporeal  Real  Property.  —  Corporeal  real 
property  includes  the  land  itself  and  the  buildings,  trees,  min- 
erals, and  other  tangible  appurtenances  thereto.  The  examples 
of  real  property  just  discussed  belong  to  this  class.  Incorporeal 
real  property  is  an  intangible  right  in  the  land  which  does  not 
amount  to  the  ownership  of  it.  The  principal  illustration  is  an 
easement,  which  is  defined  as  a  right  that  the  owner  of  one 
tract  of  land  may  exercise  over  the  land  of  another.  A  right  of 
way  which  a  man  has  over  the  land  of  his  neighbor  for  the  pur- 
pose of  reaching  his  own  land  is  an  easement.  Lots  in  a  city 
are  sometimes  sold  with  the  covenant  that  the  purchaser  will 
not  build  within  a  given  number  of  feet  from  the  street.  This 
creates  an  easement  in  favor  of  the  seller.  The  easement  may 
be  granted  perpetually  or  for  a  limited  time. 

An  owner  of  land  conveyed  a  part  of  it,  with  an  agreement  that  the 
tract  should  be  preserved  for  residence  purposes,  and  not  for  hotel,  club,  or 
camping  purposes.  Held,  that  the  deed  and  agreement  together  created  an 
easement  on  the  entire  tract  for  the  benefit  of  those  who  might  become 
owners  of  separate  parcels  thereof  and  >vas  enforceable  by  any  purchaser 
against  any  other  purchaser.  —  Boyden  v.  Roberts,  131  Wis.  659. 

An  agreement  between  the  owners  of  adjacent  city  lots  that  if  one  will 
build  a  dwelling  upon  his  lot  three  feet  back  from  the  line  of  the  street  the 
other  will  set  his  buildings  back  the  same  distance  when  he  builds,  creates 
an  easement  in  the  party  so  building  in  the  land  of  the  other. 

—  Wolfe  V.  Frost,  4  Sandf.  Ch.  (N.  Y.)  72. 

QUESTIONS 

I.   What  is  real  property  and  in  general  what  does  it  include? 
2     (a)  What  are  the  rules  as  to  property  rights  in  the  case  of  navigable 
streams  and  lakes?    (b)  In  the  case  of  non-navigable  streams  and  lakes? 

3.  To  whom  does  ice  that  forms  on  navigable  waters  belong? 

4.  {a)  What  is  corporeal  real  property?    (6)  Incorporeal  real  property? 

5.  Give  an  example  of  an  easement. 

2.   ESTATES  IN  LAND 

Definition.  —  The  estate  is  the  interest  which  one  has  in  land. 
This  interest  may  amount  to  absolute  ownership  or  it  may  be 
only  a  temporary  or  conditional  ownership.     Under  the  early 


264  REAL  PROPERTY 

English  law,  what  is  called  the  feudal  system  was  in  force  and 
the  absolute  title  to  all  real  property  was  in  the  king,  all  others 
holding  under  him  as  tenants.  The  king  generally  granted  large 
tracts  of  land  to  his  nobles  or  followers,  who  in  return  for  the 
grant  rendered  him  certain  military  service  in  the  wars  which 
were  frequently  occurring  between  the  different  nations  in  those 
times.  Each  follower  of  the  king  had  his  followers  or  servants  to 
whom  he  rented  the  land,  and  who  gave  him  a  certain  amount 
of  their  time  as  soldiers  for  the  king.  The  estate  of  the  tenant 
in  the  land  was  called  "fee."  This  feudal  system  does  not 
exist  in  the  United  States,  but  many  of  the  terms  and  rules  still 
used  in  real  property  law  are  derived  from  it. 

Estate  in  Fee  Simple ;  Eminent  Domain.  —  Estate  in  fee 
simple  is  the  nearest  approach  to  complete  and  absolute  owner- 
ship of  real  property.  Excepting  the  right  the  state  has  to  take 
the  owner's  land  for  taxes  or  under  the  power  of  eminent  domain, 
it  can  not  be  taken  from  him  without  his  consent,  except  by 
creditors  to  pay  his  debts.  It  is  an  estate  which  exists  for  a  man 
during  his  life,  and  if  not  disposed  of  by  him  descends  to  his  heirs. 
When  an  estate  of  this  nature  exists  in  land,  the  owner  can  use 
the  land  as  he  chooses,  provided  he  does  not  cause  injury  to  others, 
and  he  may  dispose  of  it  or  grant  privileges  in  reference  to  it 
as  he  may  desire.  The  land  can  be  taken  by  the  state,  under 
the  right  of  eminent  domain,  for  public  use  only,  as  for  a  road, 
railway,  etc.,  and  in  every  case  just  and  adecjuate  compensation 
must  be  given  the  owner.  This  right  is  often  delegated  to  cor- 
porations or  private  persons  who  perform  some  public  function, 
as  railroad  companies,  telegraph  companies,  etc. 

The  Supreme  Court  of  the  United  States  has  defined  eminent  domain 
as  being  ''The  ultimate  right  of  sovereign  power  to  appropriate,  not  only 
the  public  property,  but  the  private  property  of  all  citizens  within  the 
territorial  sovereignty,  to  public  purposes." 

—  Charles  River  Bridge  v.  Warren  Bridge,  ii  Pet.  (U.  S.)  420. 

Were  it  not  for  this  right  in  the  state  the  construction  of  a 
highway  or  a  railroad  might  be  prevented  by  the  arbitrary  acts 
of  a  single  individual. 

Life  Estate.  —  The  fee  in  all  real  property  must  rest  in  some 
one,  but  there  may  be  carved  out  of  it  various  lesser  estates. 


ESTATES  IN  LAND  265 

The  absolute  owner  has  the  right  to  do  what  he  will  with  his 
land,  therefore  he  may  grant  the  use  of  it  for  life  or  for  a  term 
of  years  to  another  person.  Estates  ranking  next  to  estates  in 
fee  are  life  estates.  There  are  estates  in  land  which  are  limited 
by  the  life  of  some  human  being.  It  is  not  necessary  that  the 
estate  shall  last  during  the  life,  but  that  an  estate  be  created 
which  may  continue  during  that  period.  An  estate  to  a  woman 
during  her  widowhood  is  a  life  estate,  although  she  may  remarry 
and  thus  defeat  it  before  her  death. 

Tanner  and  one  Bartlett  executed  an  instrument  under  seal  by  which 
Tanner  leased  to  Bartlett  two  acres  of  land  with  use  of  water  and  the 
privilege  of  conducting  it  to  a  cheese  house  to  be  erected  by  Bartlett.  Bart- 
lett agreed  to  pay  $30  per  year  for  the  premises  while  he  should  use  them  for 
the  manufacture  of  cheese,  and  when  the  premises  were  no  longer  to  be  used 
for  that  purpose,  they  were  to  revert  to  Tanner,  Bartlett  having  the  priv- 
ilege of  removing  all  buildings  and  fixtures  erected  by  him.  Held,  that  the 
agreement  created  a  life  estate  in  Bartlett  provided  he  continued  to  use  the 
premises  for  the  manufacture  of  cheese  and  paid  the  rent. 

—  Warner  v.  Tanner,  38  Ohio  State  118. 

Tenant  for  Life.  —  The  owner  of  the  life  estate,  or  the  tenant 
for  Hfe,  as  he  is  called,  unless  restrained  in  the  grant  to  him,  may 
dispose  of  his  interest  in  the  land,  or  out  of  it  may  grant  a  less 
estate,  as  for  a  certain  number  of  years,  but  he  can  grant  to 
another  no  rights  in  the  land  that  will  extend  beyond  his  hfe. 
The  life  tenant  can  recover  nothing  for  the  improvement  which 
he  makes  on  the  property,  and  he  is  bound  to  make  ordinary 
repairs  at  his  own  expense. 

A  life  tenant  by  placing  permanent  improvements  upon  the  land,  how- 
ever much  they  may  enhance  the  value  of  the  estate,  can  not  create  a  charge 
for  the  moneys  thus  expended  against  the  party  who  takes  the  next  estate 
or  the  remainder.  Such  improvements  are  deemed  to  have  been  made  by 
the  life  tenant  for  his  own  benefit  and  enjoyment  during  the  pendency  of  his 
estate.  —  Hagan  v.  Varney,  147  111.  281. 

A  life  tenant  is  bound  to  keep  the  premises  in  repair.  If  a  new  roof  is 
needed,  he  must  put  it  on,  and  if  paint  wears  off,  he  must  repaint. 

—  Re  Mary  E.  Steele,  19  N.  J.  Equity  120. 

The  life  tenant  has  the  right  to  cut  timber  on  the  land  for  use 
as  fuel  and  for  the  purpose  of  repairing  the  buildings  and  build- 
ing fences. 

An  action  was  brought  against  Smith,  a  life  tenant  of  certain  premises, 
for  cutting  down  and  carrying  away  two  oak  trees.    They  were  cut  and  sold 


266  REAL  PROPERTY 

for  the  purpose  of  paying  for  labor  and  material  in  building  fences  on  the 
land.  Held,  that  a  tenant  for  life  may  cut  trees  for  fuel,  wood,  and  fencing, 
but  can  not  sell  wood  to  pay  for  fencing  the  land.  To  justify  the  cutting, 
the  trees  themselves  must  be  used  for  these  purposes. 

—  Elliot  V.  Smith,  2  N.  H.  430. 

A  tenant  for  life  must  not  commit  waste,  that  is,  cause  or 
allow  any  permanent  and  material  injury  to  the  property  that 
would  affect  the  interest  of  the  owner  of  the  fee.  The  one  who 
is  entitled  to  the  property  after  the  estate  for  life  has  terminated 
has  the  right  to  have  it  come  to  him  without  being  impaired  by 
injury  to  any  part  of  the  premises.  For  example,  a  tenant  for 
life  has  no  right  to  cut  and  carry  away  timber. 

The  tenant  may  continue  to  work  mines  or  take  gravel  from 

pits  that  have  been  previously  worked,  but  if  he  opens  new 

mines  or  quarries,  he  is  guilty  of  waste. 

In  an  action  for  waste  brought  against  life  tenants  for  mining  coal  and 
quarrying  limestone,  it  was  shown  that  the  quarries  and  mines  were  opened 
and  had  been  worked  before  the  life  estate  of  defendants  began.  Held,  that 
mines  and  quarries  open  at  the  beginning  of  a  life  estate  may  be  worked  by 
the  life  tenant  even  until  they  are  exhausted,  without  rendering  him  liable 
in  damages  for  waste.  —  Sayers  v.  Hoskinson,  no  Pa.  State  473. 

Emblements.  —  Emblements  are  the  annual  products  of  the 

land  which  are  the  result  of  the  tenant's  labor,  and  which  he 

is  entitled  to  take  away  after  his  tenancy  has  ended.    All  grains 

and  other  products  which  are  planted  and  cultivated  by  one 

having  an  interest  of  uncertain  duration,  may  be  removed  by 

him  if  that  interest  terminates  without  his  fault  before  they  are 

harvested. 

Whittle  was  a  tenant  of  certain  lands  for  the  life  of  his  wife.  During  her 
lifetime  he  planted  his  annual  crops.  Thereafter  she  died,  thus  terminating 
his  life  estate,  but  he  remained  in  possession  of  the  lands  a  reasonable  time 
to  harvest  his  crops.  Held,  since  the  estate  of  the  life  tenant  was  terminated 
without  his  fault,  he  was  entitled  to  the  crops.  —  King  v.  Whittle,  73  Ga.  482. 

Therefore,  the  representative  of  a  tenant  for  life  is  entitled  to 

emblements,  since  the  tenant's  estate  is  of  uncertain  duration. 

The  executor  of  a  tenant  for  life  is  entitled  to  crops  sown  during  the 
tenant's  lifetime  but  maturing  after  his  death.  It  does  not  affect  this  right 
that  the  life  tenant  was  rapidly  failing  in  health  and  had  reason  to  expect 
his  early  death  when  the  land  was  sown.  —  Bradley  v.  Bailey,  56  Conn.  374. 

If  the  life  tenant  terminates  the  estate  by  his  own  act,  he  can 
not  claim  emblements. 


ESTATES  IN  LAND  267 

Estates  in  Remainder  and  Reversion.  —  When  the  life  estate 
ends,  the  final  ownership  of  the  property  must  rest  with  some  one, 
and  it  may  either  be  granted  to  a  person  named  or  revert  to  the 
original  owner  or  his  heirs.  If  the  estate  that  is  left  is  given  to 
some  one  else  it  is  called  an  estate  in  remainder;  if  it  comes  back 
to  the  original  owner  or  his  heirs  it  is  called  an  estate  in  reversion. 

Estates  by  Marriage.  —  Estates  by  marriage  may  now  be 
included  under  the  heads  of  Curtesy  and  Dower.  Under  the 
common  law  there  existed  an  estate  during  coverture,  or  during 
marriage,  but-  this  has  been  practically  abolished  by  statute  in 
all  of  the  states.  The  estate  during  coverture  arose  from  the 
common  law  disability  of  a  married  woman  to  hold  property; 
therefore  the  husband  acquired  an  interest  in  all  of  the  wife's  real 
property,  which  gave  him  a  right  to  the  use  and  profits  of  it  until 
the  marriage  was  terminated  by  death  or  divorce.  If  the  wife 
died  first,  her  real  property  at  once  descended  to  her  heirs,  unless 
a  child  was  born  of  their  marriage,  in  which  case  the  husband 
was  entitled  to  curtesy. 

Curtesy.  —  Curtesy  is  the  estate  for  Hfe  of  the  husband  in  the 
real  estate  of  his  wife.  Under  the  common  law  such  an  estate 
was  created  when  the  wife  died  before  the  husband  if  a  child  had 
been  born  which  might  have  inherited  the  property.  These 
conditions  existing,  the  husband  had  a  life  estate  for  the  re- 
mainder of  his  life  in  the  real  property  of  which  the  wife  died 
possessed.  It  was  not  necessary  that  the  child  should  live  until 
the  mother's  death;  if  it  lived  but  a  moment  after  birth,  it  was 
sufficient  to  vest  this  estate  in  the  husband.  This  estate  by 
curtesy  has  been  abolished  by  statute  in  some  of  the  states,  while 
in  others  it  exists  only  in  case  the  wife  dies  without  disposing  of 
her  real  property  by  will.  In  some  states  the  husband  takes  the 
same  interest  in  the  wife's  estate  as  the  wife  takes  in  the  hus- 
band's. 

Dower.  —  Dower  is  the  provision  which  the  law  makes  for  the 
support  of  a  widow  out  of  the  lands  of  the  husband.  Under 
the  common  law  it  was  a  life  interest  in  one  third  of  the  hus- 
band's realty.  By  statute  in  a  few  of  the  states  this  has  been 
changed  to  a  life  interest  in  one  half  of  his  realty.  In  order  to 
give  rise  to  this  estate,  it  is  necessary  that  there  be  a  legal  mar- 


268  REAL  PROPERTY 

riage,  that  the  husband  own  the  land  during  some  time  after 
their  marriage,  and  that  the  husband  die  before  the  wife.  The 
husband  may  own  the  real  property  but  an  instant,  still  that  will 
be  sufficient  to  cause  the  wife's  right  of  dower  to  attach.  There- 
fore, if  A  buys  a  piece  of  land  of  B  to-day  and  sells  it  to  C  to- 
morrow, the  right  of  A's  wife  attaches.  But  this  is  not  so  if  it  is 
the  same  transaction,  as,  if  A  buys  a  farm  and  gives  back  a 
purchase  money  mortgage,  the  wife  of  A  gets  a  dower  interest 
in  the  farm  subject  to  the  mortgage. 

Wheatley  and  Calhoun  purchased  from  Mackay  a  tract  of  land  and 
simultaneously  executed  a  mortgage  of  the  land  to  secure  the  purchase 
money.  It  was  held  that  the  rights  of  the  mortgagee  were  paramount  to 
those  of  the  purchasers'  wives  and  that  the  wives'  dower  attached  only  to 
the  equity  of  redemption.  —  Wheatley  v.  Calhoun,  39  Va.  264. 

Under  her  right  of  dower  the  wife  has  no  vested  interest  until 
the  husband  dies.  He  may  sell  the  land  without  her  consent, 
and  she  will  have  no  right  in  it  until  his  death;  but  after  that 
event,  into  whatever  hands  it  comes  the  wife  can  claim  her 
interest.  Therefore,  if  one  takes  land  from  a  married  man,  the 
wife  must  join  in  the  conveyance  in  order  to  cut  off  her  right  of 
dower.  The  wife  cannot  release  her  dower  to  her  husband  nor 
to  any  one  else  except  the  person  to  whom  the  land  is  conveyed. 

A  married  man  cannot  defeat  his  wife's  dower  by  devising  his 
real  property  to  others  by  his  will,  except  by  making  a  provision 
for  his  wife  which  is  expressly  stated  to  be  in  Heu  of  dower.  In 
such  a  case  the  wife  may  elect  whether  to  accept  the  provision  or 
insist  on  her  dower  right. 

Statutes  in  many  of  the  states  have  changed  the  law  as  to 
dower.  In  some  states  both  dower  and  curtesy  have  been 
abolished.  In  a  few  of  the  states  the  wife  is  not  required  to  join 
in  a  conveyance  with  her  husband,  as  she  takes  dower  only  in  the 
property  of  which  he  dies  possessed. 

Homestead.  —  Homestead  right  is  an  exemption  of  certam 
property  from  sale  for  debts,  generally  the  home  and  a  certain 
number  of  acres  of  ground  or  land  of  a  given  value.  Under  the 
common  law  there  was  no  such  provision,  but  statutes  have  been 
passed  in  many  of  the  states  creating  a  homestead  law.  These 
statutes  vary  in  the  different  states,  and  grant  the  exemption 


ESTATES  IN  LAND  269 

t 

only  to  the  head  of  a  family  or  one  upon  whom  there  rests  the 
duty  to  support  dependent  persons  living  with  him.  A  husband 
and  wife  constitute  such  a  family. 

An  unmarried  man  whose  indigent  mother  and  sisters  live  with  him  and 
are  supported  by  him  is  the  head  of  a  family  in  the  sense  in  which  the  term 
is  used  by  the  state  constitution  [of  Georgia],  and  is  entitled  to  a  homestead. 

—  Marsh  v.  Lazenhy,  41  Ga.  153. 

This  homestead  exemption  is  acquired  by  occupancy  of  the 
premises  as  a  home.  In  some  states  there  must  be  recorded  a 
notice  that  the  premises  are  claimed  as  a  homestead. 

Estate  for  Years.  —  Estate  for  years  is  an  estate  in  real 
property  less  than  a  life  estate.  This  estate  will  be  treated  in  the 
section  on  Landlord  and  Tenant. 

Equitable  Estates.  —  The  estates  which  we  have  been  discuss- 
ing are  termed  legal  estates.  There  also  exist  equitable  estates; 
that  is,  the  legal  title  may  be  in  one  party,  while  the  equitable 
title  is  in  another.  Property  may  be  conveyed  to  A  to  hold  in 
trust,  or  as  trustee,  for  the  benefit  and  use  of  B.  A  is  the  legal 
owner,  but  holds  the  property  only  for  the  purpose  of  turning 
over  the  profits  to  B,  who  is  the  equitable  owner.  In  this  case, 
A  is  the  trustee  and  B  is  the  cestui  que  trust  or  beneficiary. 

Estates  in  Severalty  and  Joint  Estates.  —  Estates  are  divided, 
according  to  the  number  of  owners,  into  estates  in  severalty  and 
joint  estates,  estates  in  severalty  being  those  in  which  the  own- 
ership is  in  one  person.  Joint  estates  are  those  which  are  owned 
by  two  or  more  persons.  The  common  classes  of  joint  estates 
are  joint  tenancies  and  tenancies  in  common.  The  chief  dis- 
tinction between  the  two  is  that  in  the  case  of  a  joint  tenancy, 
upon  the  death  of  one  of  the  joint  tenants  his  interest  vests  in 
the  survivor  or  survivors,  while  upon  the  death  of  a  tenant  in 
common  his  interest  passes  to  his  representatives.  In  the 
United  States,  all  joint  estates  are  presumed  to  be  tenancies  in 
common  unless  it  appears  that  there  was  a  contrary  intention. 

QUESTIONS 

1.  What  is  an  estate  in  land.^ 

2.  Explain  the  meaning  of  "estate  in  fee  simple." 

3.  What  is  the  right  of  eminent  domain?    Mention  some  conditions 
under  which  the  right  of  eminent  domain  may  be  delegated. 


270  REAL  PROPERTY 

4.  Who  is  a  tenant  for  life  and  what  are  his  rights? 

5.  What  restrictions  are  imposed  on  a  tenant  for  Hfe? 

6.  What  are  emblements,  and  what  are  the  tenant's  rights  with  refer- 
ence to  emblements? 

7.  What  is  (a)  an  estate  in  remainder?     (b)  An  estate  in  reversion? 

8.  How  are  estates  by  marriage  classified?    Define  each. 

9.  Under  what  conditions  will  the  husband  have  an  estate  by  curtesy 
in  his  wife's  real  property? 

10.  Under  what  conditions  does  the  wife's  dower  interest  attach  to 
her  husband's  real  property? 

11.  (a)  When  does  the  wife's  right  of  dower  attach  to  her  husband's 
real  property?    (b)  When  does  it  become  effective? 

12.  When  and  why  is  it  necessary  for  the  wife  to  join  the  husband  in 
deed  to  real  property? 

13.  What  are  homestead  rights  and  what  constitutes  a  family? 

14.  What  is  the  difference  between  legal  estates  and  equitable  estates? 

15.  When  is  an  estate  said  to  be  held  in  trust? 

16.  How  are  estates  divided  according  to  the  number  of  owners? 
Explain. 

17.  (a)  What  is  the  chief  distinction  in  the  two  classes  of  joint  estates? 
(b)  In  the  United  States,  what  is  the  presumption  in  the  case  of  a  joint 
estate? 


3.    OWNERSHIP,  SALE,  AND  CONVEYANCE 

Ownership.  —  Ownership  of  real  property  was  acquired  in 
the  first  place  by  taking  possession  of  it  and  asserting  the  rights 
of  ownership.  This  is  the  way  some  of  the  early  settlers  in 
undeveloped  regions  acquired  their  property.  This  method  of 
acquiring  ownership  is  preserved  to  a  Hmited  extent  by  acts  of 
Congress  which  permit  settlers  to  secure  title  to  such  land, 
owned  by  the  United  States,  as  may  be  designated  from  time  to 
time,  by  living  on  it  for  a  prescribed  period  and  fiHng  a  claim  to  it. 

Title.  —  The  title  to  real  property  is  the  means  by  which  the 
ownership  is  acquired  and  held.  It  is,  in  other  words,  the  evi- 
dence which  a  person  has  of  the  right  to  the  possession  of  prop- 
erty. It  may  be  either  by  descent  or  purchase.  The  title  by 
descent  is  acquired  either  by  will  or  by  the  law  of  descent, 
controlling  the  disposition  of  the  real  property  of  a  person  dying 
without  a  will.  Purchase  includes  all  other  means  of  acquiring 
the  title  to  real  property,  whether  by  gift  or  for  a  valuable 
consideration. 


OWNERSHIP,  SALE,  AND  CONVEYANCE  271 

When  any  one  has  been  in  open  continuous  undisturbed 
possession  of  property  under  a  claim  of  right  adverse  to  the  owner 
for  a  certain  length  of  time,  usually  twenty  years,  he  is  s^aid  to 
have  a  good  title  to  it.    'J'his  is  "title  by  prescription." 

Land  Contract,  —  When  the  title  is  acquired  by  purchase,  the 
transaction  is  the  result  of  a  contract  or  an  agreement  of  one 
party  to  purchase  or  take  the  property  upon  the  prescribed 
terms,  and  of  the  owner  to  sell  and  convey  the  particular  prop- 
erty for  the  stated  consideration.  This  agreement  is  often 
called  a  land  contract,  and  is  required  by  the  fourth  section  of 
the  Statute  of  Frauds  to  be  in  writing.  It  must  be  remembered 
that  this  contract  does  not  convey  the  land,  but  agrees  to  con- 
vey at  some  future  time.  If  the  conveyance  immediately 
follows  the  making  of  the  agreement,  the  contract  to  convey  is 
unnecessary,  but  in  the  passing  of  the  title  to  real  property  much 
care  is  necessary  to  ascertain  that  the  title  of  the  person  about 
to  sell,  or  the  grantor,  is  clear;  that  is,  that  no  third  party  or 
parties  have  any  claims  on  it.  To  ascertain  that  the  title  is 
clear,  a  search  is  made  in  the  public  office  where  records  of  impor- 
tant documents  such  as  deeds  and  mortgages  are  kept.  When  the 
results  of  this  search  are  put  in  writing,  the  document  shows  all 
of  the  transactions  affecting  the  particular  piece  of  land,  and  is 
called  an  abstract  of  title.  It  requires  some  time  to  obtain  this 
abstract  of  title  and  to  perfect  other  arrangements  for  the  con- 
veyance of  the  property,  and  the  land  contract  binds  the  parties 
to  their  agreement  during  this  interval. 

Deeds.  —  The  conveyance  of  the  title  to  the  property  may 
be  absolute,  in  which  case  it  is  made  by  deed,  or  conditional,  in 
which  event  it  is  made  by  mortgage. 

A  deed,  in  real  property  law,  is  defined  as  a  written  contract, 
signed,  sealed,  and  delivered,  by  means  of  which  one  party  con- 
veys real  property  to  another.  The  two  principal  kinds  of 
deeds  are  warranty  and  quitclaim.  The  warranty  deeds  are 
conveyances  which,  besides  granting  the  land,  contain  certain 
warrants  or  covenants  concerning  the  title.  A  quitclaim  deed 
merely  grants  whatever  interest  the  grantor  has  and  nothing  more. 

Conditions.  —  All  deeds  must  be  in  writing  (or  printing),  and 
must  have  parties  competent  to  contract.    To  constitute  a  valid 


272  REAL  PROPERTY 

deed,  or  conveyance  of  property,  it  is  also  requisite  that  there 
be  (i)  property  to  be  conveyed,  (2)  words  of  conveyance, 
(3)  description  of  the  property,  (4)  a  writing  signed,  and  in 
some  states  sealed,  by  the  grantor,  (5)  delivery  and  acceptance, 
(6)  acknowledgment  in  some  states,  witnesses  in  others,  and  in 
still  other  states  the  instrument  must  be  registered. 

Property  to  be  Conveyed.  —  The  first  condition  is  self-evident, 
as  a  vaHd  deed  can  not  be  given  unless  there  is  real  property  to 
convey. 

Words  of  Conveyance.  —  The  deed  must  contain  words  of 
conveyance,  called  the  granting  clause,  which  consists  of  words 
sufficient  to  transfer  the  estate  to  the  grantee.  In  most  deeds 
the  words,  "do  hereby  grant,  sell,  and  convey,"  constitute  this 
clause.  The  words  "give,  grant,  bargain,  and  sell"  are  some- 
times used,  or  again  the  phrase,  "grant,  bargain,  sell,  remise, 
release,  convey,  alien,  and  confirm." 

It  was  held  that  a  writing  as  follows,  ''This  indenture  witnesseth,  that  I, 
Jacob  Smith,  warrant  and  defend  unto  Christena  Smith,  her  heirs  and  assigns 
forever,"  certain  real  estate  that  was  then  described,  the  instrument  being 
then  signed,  sealed,  and  acknowledged  like  a  deed,  was  not  effective  as  a 
conveyance,  as  it  contained  no  granting  clause,  nor  words  signifying  a  grant. 

—  Hiimmelman  v.  Mounts,  87  Ind.  178. 

The  granting  clause  should  contain  the  names  of  the  parties, 
also  the  words  defining  the  estate,  as  "unto  the  said  party  of  the 
second  part  his  heirs  and  assigns  forever."  By  the  clause  used 
in  this  case  an  estate  in  fee  is  granted.  Under  the  common  law, 
if  the  word  "heir"  was  omitted  and  the  grant  was  to  the  grantee 
alone,  only  a  life  interest  would  be  conveyed. 

It  was  held  that  a  grant  to  A  for  her  natural  life  and  at  her  death  to  her. 
children,  conveyed  a  life  estate  to  A  and  then  an  estate  to  her  children  during 
their  lives,  but  that  they  did  not  take  it  in  fee,  as  the  grant  contained  no 
words  of  inheritance.  —  Adams  v.  Ross,  30  N.  J.  Law  505. 

A  grant  to  A  and  "his  successors  and  assigns  forever,"  conveyed  only  a 
life  estate.  The  court  said  that  it  is  a  well-settled  rule  of  the  common  law 
that  the  word  "heirs"  is  necessary  to  create  an  estate  of  inheritance. 

—  Sedgwick  V.  Laflin,  10  Allen  (Mass.)  430. 

But  this  rule  has  been  changed  by  statute  in  some  of  the  states, 
and  a  conveyance  showing  an  intent  to  grant  a  fee  will  be  so 
construed. 


OWNERSHIP,  SALE,  AND  CONVEYANCE  273 

The  conveyance  clause  may  contain  exceptions;  that  is,  there 
may  be  reserved  something  that  would  otherwise  pass  with  the 
property  conveyed.  The  exception,  for  instance,  might  be  of  a 
right  of  way  over  the  land,  or  the  right  to  mine  coal  or  minerals. 
The  exception  must  be  stated  and  particularly  described. 

The  habendum  is  that  part  of  the  conveying  clause  which 
begins  with  the  words  "To  have  and  to  hold."  It  designates 
the  estate  which  is  to  pass.  If  it  does  not  agree  with  the  granting 
or  conveying  clause,  it  is  void,  and  if  the  conveying  clause  de- 
fines the  estate  granted,  the  habendum  clause  is  not  necessary, 
although  it  is  usually  employed. 

Where  the  granting  clause  grants  an  absolute  estate  to  A,  and  the 
habendum  recites  that  a  life  estate  was  given  to  A,  remainder  to  B,  A  takes 
an  absolute  estate.  When  the  granting  clause  and  the  habendum  do  not 
agree,  the  latter  gives  way  to  the  granting  clause. 

—  Ralliffe  v.  Marrs,  87  Ky.  26. 

Description.  —  The  deed  must  contain  a  description  of  the 
property  sufficient  to  identify  it.  The  description  may  include 
references  to  maps,  monuments,  distances,  or  boundaries. 

A  creek  is  a  monument  which  may  be  referred  to  as  a  boundary  in  a  deed 
or  mortgage.  —  Travelers  Insurance  Co.  v.  Yount,  98  Ind.  454. 

The  description  often  closes  with  the  words,  "with  the  privi- 
leges and  appurtenances  thereto  belonging."  But  it  is  not 
considered  that  this  clause  adds  anything  to  the  deed.  The 
appurtenances  are  such  rights  as  watercourses,  rights  of  way, 
rights  to  light  and  air,  etc.,  and  these  are  all  included  in  the 
general  grant,  unless  they  are  expressly  reserved. 

Signature  and  Seal.  —  At  common  law  a  seal  was  necessary 
to  the  legality  of  a  deed,  but  in  many  states  this  requirement  has 
been  abolished.  Between  the  parties  themselves  to  a  deed  a 
consideration  is  not  necessary  to  its  validity,  although  it  may 
in  some  cases  be  attacked  by  creditors  of  the  grantor.  A  date 
is  not  strictly  necessary  to  the  validity  of  a  deed,  and  when  used 
may  be  placed  in  any  part  of  the  instrument.  It  is  generally  at 
the  commencement  or  just  before  the  signature  at  the  end.  A 
deed  takes  effect  from  the  time  of  delivery,  and  the  presumption 
is  that  the  date  of  delivery  is  the  date  of  the  instrument. 

It  is  usual  for  the  deed  to  close  with  the  testimonium  clause, 


274  REAL  PROPERTY 

which  recites,  ''In  witness  whereof  the  party  of  the  first  part 
has  hereunto  set  his  hand  and  seal  the  day  and  year  first  above 
written,"  and  immediately  thereafter  the  grantor  signs  his  name. 
By  the  Statute  of  Frauds  the  deed  is  required  to  be  signed.  In 
some  states  the  statutes  require  that  the  deed  be  subscribed,  and 
in  that  case  it  must  be  signed  at  the  end,  otherwise  it  may  be 
signed  at  any  other  place. 

While  the  laws  of  North  Carolina  require  all  deeds  conveying  land  to  be 
signed  by  the  maker,  the  signing  is  not  necessanly  required  to  be  at  the  end 
of  the  deed.  If  the  signature  is  in  the  body  of  the  instrument,  it  is  sufficient. 
Nor  is  it  essential  that  the  maker  should  actually  sign  his  name.  He  may 
authorize  another  to  do  it  in  his  presence,  or  he  may  affix  his  mark,  which 
will  have  the  same  effect  as  his  own  writing. 

— ■  Devereux  v.  McMahon,  io8  N.  C.  134. 

Delivery  and  Acceptance.  —  A  deed  does  not  become  opera- 
tive until  it  is  delivered  and  accepted;  that  is,  the  instrument 
must  pass  out  of  the  control  of  the  grantor,  but  it  must  be  his 
voluntary  act,  and  if  taken  without  his  consent,  as  by  theft,  it  is 
not  a  delivery. 

A  deed  had  been  signed,  sealed,  and  acknowledged  in  due  form,  but 
remained  in  the  possession  of  the  grantor  until  his  death,  and  he  managed 
the  property  and  received  the  rents  and  profits.  It  was  held  that  the 
grantees  named  in  the  deed  received  nothing  by  it  as  it  was  ineffective  for 
lack  of  delivery.  —  Fain  v.  Smith,  14  Oregon  82. 

The  instrument  may  be  intrusted  to  a  third  person  to  be  deliv- 
ered to  the  grantee  on  the  performance  of  some  condition.  This 
is  termed  a  "delivery  in  escrow."  To  constitute  a  valid  delivery 
in  escrow  there  must  be  no  power  in  the  grantor  to  recall  it. 

The  grantor  duly  executed  the  deed  and  said,  "I  deliver  this  as  my  act 
and  deed."  The  grantee  not  being  present,  the  grantor  gave  the  deed  to  his 
sister  and  said,  "Here,  Bess,  keep  this,  it  belongs  to  Mr.  Gamoris  [the 
grantee]."  It  was  held  that  the  grantor  parted  with  control  over  the  deed 
and  it  was  good  delivery  to  the  grantee. 

—  Doe  V.  Knight,  6  Barn  &  C.  (Eng.)  671. 

Not  only  must  there  be  a  delivery,  but  there  must  be  an 
acceptance  by  the  grantee,  though  acceptance  will  sometimes 
be  presumed  from  the  grantee  having  possession  of  the  deed  or 
from  the  beneficial  character  of  the  instrument. 

A  deed  is  one  of  the  forms  of  a  contract  and  the  grantor  and  grantee 
must  agree,  the  former  to  convey  and  the  latter  to  accept.    Therefore  there 


OWNERSHIP,  SALE,  AND  CONVEYANCE  275 

must  be  more  than  a  mere  manual  delivery  of  the  deed;  it  must  be  accepted 
and  assented  to.  Where  it  is  beneficial  to  the  grantee,  delivery  and  accept- 
ance will  easily  be  presumed  from  many  circumstances,  such  as  acknowledg- 
ment, recording,  possession  and  enjoyment  of  the  estate  by  the  grantee,  etc. 

— 'Kearny  v.  Jeffries,  48  Miss.  343. 

Acknowledgment.  —  Acknowledgment  is  necessary  to  entitle 
the  instrument  to  be  recorded  in  some  states,  and  in  other  states 
it  is  necessary  to  give  it  validity.  An  acknowledgment  consists 
in  the  grantor  going  before  an  officer  designated  by  law  and 
declaring  the  deed  to  be  genuine,  and  that  it  is  his  voluntary 
act,  the  officer  making  a  certificate  to  this  effect. 

In  some  states  one  or  more  witnesses  to  a  deed  are  required 
by  statute  in  case  there  is  no  acknowledgment  :n  order  to  entitle 
it  to  be  recorded,  while  in  other  states  they  are  necessary  to 
give  it  validity. 

Record.  —  The  statutes  in  all  of  the  states  provide  for  the 
registration  or  recording  in  some  public  office  of  all  deeds  and 
other  instruments  affecting  real  property.  Instruments  so  re- 
corded are  notice  to  the  whole  world  that  they  exist,  as  every 
one  can  examine  the  records.  Therefore  the  first  instrument 
recorded  has  priority  over  another  hke  instrument  on  the  same 
property.  But  as  between  the  parties  themselves  and  all  parties 
having  actual  notice,  the  instrument  is  in  most  of  the  states 
equally  valid  without  recording.  It  is  only  against  subsequent 
purchasers  who  buy  in  good  faith  that  unrecorded  instruments 
are  of  no  effect. 

Warranties.  —  A  deed  may  be  a  full  warranty  deed  (see 
Appendix),  which  contains  the  five  covenants  of  title,  or  it  may 
be  a  simple  warranty  deed  containing  only  the  covenant  of  quiet 
enjoyment  and  covenant  warranting  the  title  of  the  grantor. 
Upon  a  breach  of  a  covenant  the  grantor  is  liable  for  damages. 
They  are  undertakings  by  which  the  grantor  warrants  certain 
facts  to  the  grantee. 

Seizin.  —  In  the  full  warranty  deed  above  mentioned  the  first 
covenant  is  that  of  seizin  and  right  to  convey.  This  is  a  covenant 
that  the  grantor  has  possession  of  the  property  granted  and  has 
a  right  to  convey  it.  He  must  have  the  very  estate  in  quantity 
and  quality  which  the  deed  purports  to  convey.  This  covenant 
is  broken  when  the  grantor  is  not  the  sole  owner,  or  when  the 


276  REAL  PROPERTY 

property  is  in  the  adverse  possession  of  another,  or  when  the  land 
described  does  not  exist,  or  there  is  a  deficiency  in  the  amount  of 
land  conveyed. 

The  Mercantile  Company  had  obtained  its  title  to  some  land  by  the 
foreclosure  of  a  mortgage,  but  the  foreclosure  proceedings  were  defective 
and  the  titles  of  six  of  the  eight  owners,  against  whom  the  proceedings  were 
brought,  were  not  divested.  Therefore  the  covenant  of  seizin  in  the  deed 
from  the  Trust  Company  was  held  to  have  been  broken  and  damages  were 
awarded.  —  Mercantile  Trust  Co.  v.  South  Park  Residence  Co.,  94  Ky.  271. 

This  covenant  is  often  set  forth  in  the  deed  after  the  following 
manner: 

"The  party  of  the  first  part  does  hereby  covenant  and  agree 
that  at  the  time  of  the  ensealing  and  delivery  of  these  presents  he 
was  the  lawful  owner  and  was  well  seized,  in  fee  simple,  of  the 
premises  above  described,  free  and  clear  from  all  lien,  right  of 
dower,  or  other  incumbrances  of  every  name  and  nature,  legal  or 
equitable,  and  that  he  has  good  right  and  full  power  to  convey 
the  same." 

Quiet  Enjoyment.  —  The  second  covenant  is  that  of  quiet 
enjoyment,  and  is  to  the  effect  that  the  grantee  and  his  heirs 
and  assigns  shall  not  be  legally  disturbed  in  their  quiet  and 
peaceable  possession  of  the  premises,  but  that  they  shall  possess 
it  without  suit,  trouble,  or  eviction  by  the  grantor  or  his  heirs 
or  assigns. 

A  covenant  of  quiet  enjoyment  relates  to  the  grantor's  right  to  convey 
the  premises.  It  is  a  covenant  that  the  grantee  shall  not  be  rightfully  dis- 
turbed in  his  possession,  and  not  that  he  shall  not  be  disturbed  at  all.  So 
where  it  appears  that  the  grantee  was  kept  out  of  possession  by  a  party  who 
had  no  right  or  claim,  it  is  not  a  breach  of  the  covenant. 

—  Underwood  v.  Bir chard,  47  Vt.  305. 

Incumbrances.  —  The  third  covenant  is  one  against  incum- 
brances, and  warrants  that  there  are  not  outstanding  rights  in 
third  parties  to  the  land  conveyed.  It  is  a  covenant  against 
both  mortgages  and  easements  in  favor  of  third  parties.  It  is 
broken  by  an  outstanding  mortgage,  an  unexpired  lease,  an 
easement,  unpaid  taxes,  or  judgments  that  are  unsatisfied. 

A  judgment  against  the  vendor  of  land  entered  before  the  execution  of 
the  deed,  was  a  breach  of  the  covenant  against  incumbrances. 

,  —  Holman  v.  Creagnules,  14  Ind.  177. 


OWNERSHIP,  SALE,  AND  CONVEYANCE  277 

The  usual  covenant  against  incumbrances  was  broken  by  outstanding 
taxes  which  were  a  lien  on  the  property  when  the  deed  was  made,  and 
the  grantor  can  be  compelled  to  pay  them.  —  Milot  v.  Reed,  11  Mont.  568. 

Further  Assurance.  —  The  fourth  covenant  is  one  of  further 
assurance,  and  is  an  agreement  by  the  grantor  to  perform  any 
acts  that  may  be  necessary  to  perfect  the  grantee's  title,  includ- 
ing the  execution  of  such  further  instruments  as  may  be  required 
for  this  purpose. 

A  deed  made  by  Pascault  to  Cochran  contained  the  covenant  of  further 
assurance.  A  defect  in  title  appeared,  whereupon  Pascault  purchased  all  the 
outstanding  rights  and  deeded  them  to  Cochran.  It  was  held  that  this  was 
full  performance  of  Pascault's  obligation  under  the  covenant. 

—  Cochran  v.  Pascault,  54  Md.  i. 

Warranty  of  Title.  —  The  fifth  and  last  covenant  is  the  war- 
ranty of  title,  which  is  an  assurance  by  the  grantor  that  the 
grantee  shall  not  be  evicted  from  part  or  all  of  the  premises  by 
reason  of  a  superior  title  in  any  one  else.  This  covenant  is 
broken  by  an  eviction  from  any  or  all  of  the  premises,  the  removal 
of  fixtures  by  one  having  a  right  to  do  so,  or  the  taking  of  the 
premises  by  one  having  a  better  title. 

Held,  that  eviction  by  process  of  law  is  required  to  enable  one  to  main- 
tain an  action  for  breach  of  covenant  of  warranty. 

—  Norton  v.  Jackson,  5  Calif.  262. 

Quitclaim  Deed.  —  The  quitclaim  deed  contains  none  of  the 
covenants  of  a  warranty  deed,  and  purports  to  grant  only  what 
interest  the  grantor  has,  if  he  has  any.  The  quitclaim  deed  does 
not  even  aver  that  he  has  any  title.  If  he  has  a  defective  title, 
the  grantee  has  no  claim  on  him.  The  words  of  conveyance  differ 
from  those  in  the  warranty  deed.  This  form  of  deed  is  used  when 
the  grantor  has  an  interest  in  land,  as  one  of  several  heirs  or  as  a 
joint  owner,  and  wishes  to  convey  his  share  to  another  heir  or  to 
the  other  joint  owner.  It  is  also  employed  when  a  person  having 
an  easement  or  other  minor  estate  in  land  wishes  to  transfer  his 
estate  to  the  owner  in  fee  for  the  purpose  of  clearing  the  title. 

Covenant  against  Grantor.  —  The  covenant  against  the 
grantor  is  the  only  covenant  used  in  a  quitclaim  deed.  It  is  also 
sometimes  used  in  a  warranty  deed,  when  the  grantor  is  not 
willing  to  warrant  the  title  absolutely,  but  is  willing  to  covenant 


27^  REAL  PROPERTY 

that  he  has  not  himself  done  or  permitted  to  be  done  anything 
that  would  injuriously  affect  the  title  to  the  premises.  Such  a 
deed  is  called  a  special  warranty  deed.  One  form  of  this  covenant 
is  as  follows:  "The  said  party  of  the  first  part  covenants  with 
said  party  of  the  second  part  that  the  party  of  the  first  part  has 
not  done  or  suffered  anything  whereby  the  said  premises  have 
been  incumbered  in  any  way  whatever." 

It  was  held  that  a  deed  with  a  special  warranty  against  all  persons 
claiming  by,  through,  or  under  the  grantor,  can  not  be  extended  to  a  gen- 
eral covenant  of  warranty  against  all  persons. 

—  Buckner  v.  Street,  15  Fed.  Rep.  (U.  S.)  365. 

Transfer  by  Will  and  Inheritance. —  A  will  is  an  instrument 
by  which  a  person  disposes  of  his  property,  to  take  effect  after 
his  death.  When  real  property  is  left  to  some  one  by  will  it  is 
said  to  be  devised,  and  the  person  who  so  receives  it  takes  it  by 
devise. 

When  a  man  dies  without  making  a  will  he  is  said  to  have 
died  "intestate,"  and  the  law,  through  a  court  for  this  purpose, 
determines  which  of  his  relatives  shall  take  his  property,  either 
real  or  personal.    Their  title  is  acquired  by  inheritance. 

QUESTIONS 

1.  (a)  How  may  ownership  to  real  property  be  acquired?     {b)  What 
is  the  usual  way  at  the  present  time  of  acquiring  ownership? 

2.  What  is  the  title  to  real  property? 

3.  Explain  title  by  prescription. 

4.  What  is  a  land  contract  and  when  is  it  necessary? 

5.  What  is  a  deed  and  when  is  it  used? 

6.  What  are  the  requisites  of  a  valid  deed? 

7.  What  are  the  words  of  conveyance? 

8.  What  should  the  granting  clause  contain? 

9.  May  the  conveyance  clause  contain  exceptions?    Explain. 

10.  What  is  the  "habendum"?    Is  it  necessary? 

11.  How  should  the  property  be  described  in  a  deed? 

12.  Is  a  seal  necessary  to  the  legality  of  a  deed? 

13.  What  are  the  special  requirements  in  the  execution  of  a  deed? 

14.  When  does  a  deed  become  operative? 

15.  What  is  "delivery  in  escrow,"  and  when  is  it  valid? 

16.  What  is  an  acknowledgment  and  when  is  it  necessary? 

17.  Is  it  necessary  to  have  witnesses  to  a  deed? 

18.  Why  is  it  usually  required  that  deeds  be  recorded?    Explain. 


MORTGAGES  279 

19.  What  is  the  difference  between  a  full  covenant  warranty  deed  and 
a  simple  warranty  deed? 

20.  What  are  the  five  covenants  in  a  full  warranty  deed? 

21.  What  is  a  quitclaim  deed? 

22.  How  is  property  transferred  by  will? 

23.  How  is  title  to  property  acquired  by  inheritance? 

4.   MORTGAGES 

Definition.  —  A  mortgage  is  a  conveyance  of  land  as  security 
for  a  debt  or  some  other  obligation,  subject  to  the  condition 
that  upon  the  payment  of  the  debt  or  the  performance  of  the 
obligation  the  conveyance  becomes  void.  The  debtor,  or  the 
person  who  gives  the  mortgage,  is  called  the  mortgagor  and 
the  creditor,  or  the  person  to  whom  it  is  given,  is  the  mortgagee. 

Equity  of  Redemption.  —  Under  the  common  law  the  mort- 
gage was  strictly  a  conveyance,  and  the  mortgagee  held  the  legal 
title  to  the  property.  His  title  was  subject  to  be  defeated  upon 
the  payment  of  the  debt  secured,  and  in  default  of  the  payment 
his  estate  became  absolute.  This  often  led  to  hardship  and 
injustice,  for  the  value  of  the  property  might  be  greatly  in  excess 
of  the  mortgage  debt.  The  courts  of  equity  recognized  this 
injustice  and  extended  relief  by  giving  the  mortgagor  the  right 
to  redeem  the  land  by  paying  the  debt  with  interest.  This 
right  was  termed  an  '' equity  of  redemption,"  and  to  cut  off  such 
right  an  action  was  brought  in  court  giving  the  mortgagor  a 
certain  time  in  which  to  pay  or  else  lose  the  right  entirely. 

Lien.  —  Now,  in  many  of  the  states,  the  mortgage  is  looked 
upon  as  a  lien  which  the  mortgagee  has  on  the  mortgaged  prem- 
ises, the  mortgagor  still  being  the  legal  owner  subject  to  the 
lien  which  the  mortgagee  holds  upon  the  land  as  security  for 
his  debt. 

Any  Interest  in  Realty  which  is  Subject  to  Sale  may  be 
Mortgaged.  —  A  widow  may  mortgage  her  right  of  dower,  or  a 
mortgagee  may  mortgage  his  mortgage,  and  an  heir  may  mort- 
gage his  undivided  interest. 

A  and  B  entered  into  a  written  contract,  by  which  B  bound  himself  to 
convey  certain  lands  to  A.  Held,  that  A  may  mortgage  his  interest  in  the 
land  under  this  contract.  Everything  that  is  the  subject  of  a  contract  or 
that  may  be  assigned,  is  capable  of  being  mortgaged. 

—  Neligh  V.  Michenor,  11  r>.  J.  Equity  539. 


28o  REAL  PROPERTY 

Form.  —  A  mortgage  is  in  substantially  the  same  form  as  a 
deed,  with  the  addition  of  the  defeasance  clause.  This  is  a  clause 
containing  a  statement  that  the  conveyance  is  made  conditional 
upon  the  payment  of  a  specific  amount,  which  amount  being 
paid,  the  instrument  is  void.  A  mortgage  is  executed  with  all 
of  the  formality  of,  and  in  practically  the  same  manner  as,  a 
deed.  As  a  rule,  when  the  mortgage  is  given  to  secure  a  debt, 
it  is  accompanied  by  a  note  or  bond  or  other  evidence  of  indebted- 
ness, making  the  mortgagor  personally  liable,  so  that  the  mort- 
gagee may  look  to  him  personally  in  case  the  mortgaged  property 
is  not  sufficient  to  pay  the  debt.  This  is  not  necessary  to  the 
vaHdity  of  the  mortgage,  as  there  may  be  a  valid  mortgage  with- 
out any  personal  Habihty  on  the  part  of  the  mortgagor,  in 
which  case  the  creditor's  only  right  to  payment  is  out  of  the 
mortgaged  property. 

Defeasance  Clause.  —  This  is  the  clause  showing  that  the 
instrument  is  given  as  security  for  a  debt.  No  particular  form  is 
necessary  so  long  as  this  condition  appears.  And  although  on  its 
face  the  instrument  may  be  a  deed,  a  court  of  equity  will  permit 
it  to  be  shown  that  the  agreement  really  was  that  the  conveyance 
should  be  made  as  security  for  a  debt  and  not  absolutely;  there- 
fore when  this  is  shown,  although  the  instrument  be  a  deed  in 
form,  it  will  be  declared  a  mortgage. 

Covenants.  —  The  mortgage  may  or  may  not  include  one  or 
more  covenants.  They  are  usually  inserted  for  the  better  security 
of  the  mortgagee.  One  clause  gives  the  mortgagee  the  right  to 
sell  the  property;  that  is,  to  foreclose  the  mortgage  upon  default 
of  the  payment  of  any  part  of  the  principal  as  agreed. 

The  insurance  clause  is  inserted  to  protect  the  mortgagee's 
interest  in  the  buildings  on  the  mortgaged  premises. 

Another  clause,  called  the  interest,  tax,  and  assessment  clause, 
compels  the  mortgagor  to  pay  the  interest,  taxes,  and  all  assess- 
ments levied  against  the  property,  and  in  case  of  default  for  a 
given  number  of  days,  the  mortgagee  may,  if  he  choose,  consider 
the  whole  amount  of  the  debt  due  and  proceed  with  the  same 
remedies  as  though  the  time  within  which  the  debt  was  to  have 
been  paid  had  expired. 

A  short  form  of  mortgage  is  shown  in  the  Appendix. 


MORTGAGES  281 

Assignment.  —  The  mortgagee  may  desire  to  sell  the  mortgage 
or  transfer  it  to  another  party.  This  he  may  do,  as  the  interest 
of  the  mortgagee  in  the  property  mortgaged  is  subject  to  sale  as 
well  as  the  interest  in  the  property  remaining  in  the  mortgagor. 
The  assignee  takes  the  mortgage  with  all  of  the  rights  of  the 
assignor,  but  no  others.  The  mortgage  can  be  assigned  only 
by  an  instrument  in  writing  and  under  seal,  and  the  assignment 
should  be  recorded,  to  protect  the  assignee  against  a  subsequent 
fraudulent  assignment. 

Foreclosure.  —  The  remedy  of  the  mortgagee  when  the  debt 
secured  by  the  mortgage  is  not  paid  as  agreed  is  to  foreclose  his 
lien.  The  foreclosure  of  the  mortgage  means  the  proceedings 
by  which  the  mortgaged  premises  are  applied  to  the  payment  of 
the  mortgage  debt,  and  by  which  the  equity  of  redemption  is 
barred  or  cut  off.  This  remedy  usually  consists  of  an  action  in 
the  courts  from  which  a  judgment  is  obtained,  decreeing  that  the 
property  be  sold  and  the  proceeds  applied  toward  the  payment 
of  the  mortgage  debt.  If  anything  remains  after  the  costs  of 
the  proceedings  and  the  mortgage  debt  are  paid,  it  is  turned  over 
to  the  mortgagor.  This  action  bars  all  rights  of  the  mortgagor 
to  the  property  and  cuts  off  his  equity  of  redemption.  All  parties 
interested  in  the  property  must  be  made  parties  to  the  action,  so 
that  they  will  have  notice  of  the  proceedings  and  can  present 
their  claims  to  the  court  if  they  desire.  The  statutes  generally 
require  that  the  property  be  advertised  for  sale  in  the  papers  for 
a  certain  length  of  time  before  the  sale  takes  place.  In  case  the 
property  does  not  sell  for  enough  to  satisfy  the  debt,  a  personal 
judgment  on  the  note  or  bond  is  taken  for  the  balance,  this  being 
called  a  deficiency  judgment. 

Record.  —  Mortgages  are  required  to  be  recorded  in  the  same 
manner  as  deeds,  in  order  to  give  notice  to  subsequent  pur- 
chasers of  the  property.  If  not  so  recorded,  they  are  in  most 
states  valid  as  between  the  original  parties,  but  not  against 
persons  who  have  purchased  in  ignorance  of  the  existence  of 
the  mortgage.  But  in  some  states  the  statutes  require  the 
mortgage  to  be  recorded  in  order  to  render  it  valid. 

Discharge.  —  If  the  mortgage  is  paid  according  to  its  terms 
when  it  becomes  due,  it  is  discharged;  or  payment  after  it  is  due, 


2S2  REAL  PROPERTY 

but  before  an  action  is  brought  to  foreclose,  discharges  the 
mortgage.  In  order  to  cancel  the  mortgage  on  the  records, 
an  instrument  called  a  satisfaction  of  mortgage  or  discharge  of 
mortgage,  executed  by  the  mortgagee,  must  be  filed  in  the  office 
where  the  mortgage  was  recorded,  otherwise  the  mortgage, 
although  paid,  would  still  appear  by  the  records  to  stand  against 
the  property. 

Second  Mortgage.  —  The  mortgagor  may  place  a  second  or 
subsequent  mortgage  on  the  property.  Unless  it  is  otherwise 
stipulated,  the  mortgages  take  priority  according  to  their  date; 
that  is,  the  second  mortgagee  gets  nothing  until  the  first  is  paid 
in  full.  But  in  case  the  first  mortgage  is  not  recorded  and  the 
second  mortgagee  has  no  notice  of  it,  the  second  mortgage  will, 
if  recorded,  have  priority. 

Any  mortgagee  may  foreclose  his  mortgage  when  it  is  past 
due  or  the  mortgagor  is  in  default,  but  he  can  not  affect  the 
interest  of  a  prior  mortgagee  by  such  proceedings,  although  he 
may  cut  off  any  subsequent  mortgagee.  By  foreclosing  his 
mortgage,  therefore,  the  holder  of  a  first  mortgage  will  bar  the 
second  mortgage,  and  if  the  property  sells  for  only  enough  to 
pay  the  first  mortgage,  the  second  mortgagee  will  lose.  Of 
course  if  the  property  sells  for  more  than  enough  to  pay  the 
first  mortgage,  the  balance  will  be  applied  on  the  second  mort- 
gage. If  the  second  mortgagee  forecloses,  he  must  sell  the 
property  subject  to  the  lien  of  the  first  mortgage. 

Deeds  of  Trust.  —  Mortgages  may  be  given  by  means  of  a 
deed  of  trust  to  a  third  party  as  trustee.  These  are  called  deeds 
of  trust.  The  trustee  has  the  right  to  foreclose.  Should  he  fail 
to  exercise  his  right,  a  bondholder  may  foreclose,  for  the  benefit  of 
the  other  bondholders.  Before  he  can  do  this,  he  must  show  the 
court  that  the  foreclosure  is  necessary  to  protect  the  interests  of 
the  bondholders  and  that  the  trustee  refused  to  take  action. 


QUESTIONS 

1.  What  is  a  mortgage  on  land? 

2.  Explain  the  term  "equity  of  redemption." 

3.  Is  a  mortgage  a  lien  on  the  property  mortgaged?    Explain. 

4.  What  interests  in  realty  may  be  mortgaged? 


LANDLORD  AND  TENANT  2S3 

5.  How  do  a  mortgage  and  a  deed  compare  in  form? 

6.  What  is  the  defeasance  clause?    P2xplain. 

7.  Mention  three  covenants  usually  contained  in  a  mortgage. 

8.  In  what  way  is  the  debt  usually  represented? 

9.  (a)  Are    mortgages    assignable?      Explain.      (b)  What    are    the 
requirements? 

10.  What  remedy  has  the  mortgagor  when  the  debt  is  not  paid? 

11.  Is  it  necessary  to  record  mortgages?    Explain. 

12.  What  is  necessary  to  discharge  and  cancel  a  mortgage? 

13.  Can  a  second  mortgage  be  placed  on  property?    Explain. 

14.  Can  a  mortgagor  who  holds  a  second  mortgage  foreclose?    Explain. 

5.   LANDLORD  AND  TENANT 

Estates  for  Years.  —  We  have  discussed  estates  in  fee  simple 

and  estates  for  life.    But  estates  in  real  property  may  be  created 

for  a  shorter  definite  period.    These  are  called  estates  for  years. 

The  grantor  is  known  as  the  lessor  or  landlord,  and  the  grantee  as 

the  lessee  or  tenant.    The  contract  creating  an  estate  for  years 

is  a  lease.    It  is  important  to  observe  that  an  estate  for  years,  or 

a  leasehold  interest  in  real  estate,  is  classed  as  personal  property. 

Taylor,  at  the  time  of  his  death,  left  a  will  giving  his  real  estate  to  a 
certain  person  and  his  personal  property  to  his  son  absolutely.  Taylor 
owned  a  number  of  leases  of  property,  some  of  which  were  to  run  ninety- 
nine  years.    Held,  these  leases  passed  as  personal  property  to  the  son. 

—  Taylor  v.  Taylor,  47  Md.  295. 

Leases.  —  By  the  Statute  of  Frauds  in  most  states  the  lease 
must  be  in  writing,  if  for  a  longer  time  than  one  year.  Gener- 
ally, if  for  one  year  or  less  it  may  be  made  orally,  and  this  is 
true  even  though  the  term  is  to  commence  at  a  date  in  the 
future.  In  a  few  states  leases  can  be  made  for  only  a  limited 
number  of  years,  while  in  others  a  lease  for  more  than  a  certain 
number  of  years  must  be  recorded. 

Covenants.  —  A  common  form  of  lease  is  shown  in  the  Appen- 
dix. Besides  the  provisions  in  it,  any  further  agreement  between 
the  parties  may  be  incorporated  in  the  writing.  A  lease  is  but  a 
contract,  and  the  full  agreement  of  the  parties  should  be  set 
forth.  Frequently  the  following  covenant  is  inserted:  "It  is 
further  mutually  covenanted  and  agreed  that,  in  case  the  build- 
ings or  tenements  on  said  premises  shall  be  destroyed  or  so  injured 
by  fire  as  to  become  untenantable,  then  this  lease  shall  become 


284  REAL  PROPERTY 

thereby  terminated,  if  said  second  party  shall  so  elect;  and  in 
such  case,  he  shall  vacate  said  premises  and  give  immediate 
written  notice  thereof  to  said  landlord,  in  which  case  rent  shall 
be  due  and  payable  up  to  and  at  the  time  of  such  destruction  or 
injury.'^ 

Term.  —  The  term  of  the  lease  is  the  time  for  which  it  is  to 
run.  If  the  tenant  has  been  in  possession  under  a  lease  for  one  or 
more  years,  and  he  retains  possession  without  executing  a  new 
lease,  he  is  presumed,  in  the  absence  of  some  agreement,  to  be  a 
tenant  from  year  to  year,  which  means  that  his  term  after  the 
expiration  of  the  lease  is  one  year,  and  if  he  remains  in  possession 
after  the  next  year  he  is  a  tenant  for  another  year. 

Express  and  Implied  Covenants.  —  The  covenants  contained 
in  a  lease  are  either  expressed  or  implied. '  The  implied  covenants 
exist  whether  they  are  mentioned  or  not;  the  express  covenants 
must  be  included  in  the  express  conditions  of  the  lease,  and  may 
be  many  or  few. 

The  implied  covenants,  on  the  part  of  the  lessor,  are  those 
regarding  quiet  enjoyment  and  the  payment  of  taxes.  The 
usual  words  of  grant  in  a  lease  are  '' demise  and  lease,"  or  "grant 
and  demise,"  these  words  being  said  to  import  a  covenant  of 
quiet  enjoyment.  This  covenant  is  broken  when  the  tenant  is 
evicted  by  some  one  who  has  a  paramount  title. 

Hanley  leased  certain  premises  to  Banks,  the  lease  containing  no 
covenant  of  quiet  enjoyment.  Hanley  raised  and  adjusted  the  building  to 
conform  to  the  grade  of  the  street,  doing  the  work  while  Banks  was  in  pos- 
session and  in  such  a  manner  that  Banks'  possession  and  use  of  the  prem- 
ises was  seriously  interfered  with.  Held,  that  the  law  always  implies  a 
covenant  of  quiet  enjoyment  from  the  fact  of  the  leasing,  and  that  the 
covenant  is  broken  by  any  event  which  prevents  the  tenant  from  enjoying 
the  premises  as  amply  as  he  is  entitled  to  by  the  lease. 

—  Hanley  v.  Banks,  6  Okla.  79. 

The  landlord  also  impliedly  covenants  that  he  will  pay  all 
taxes  assessed  against  the  premises  during  the  term.  There  is 
no  implied  covenant  on  the  part  of  the  lessor,  or  landlord,  that 
the  premises  are  in  a  tenantable  condition. 

In  an  action  for  rent  of  a  store  leased  to  one  Coulter,  the  defense  was, 
that  the  store  was  rented  for  the  selling  of  musical  instruments,  and  that  it 
was  so  imperfectly  and  defectively  constructed  that  rain  came  through  the 
roof  and  ceiling,  causing  damage  to  the  instruments.  Held,  that  in  the  letting 


LANDLORD  AND  TENANT  285 

of  a  store,  room,  or  house,  there  is  no  implied  warranty  that  it  is,  or  shall 
continue  to  be,  fit  for  the  purpose  for  which  it  is  let.  The  tenant  must 
determine  for  himself  the  safety  and  fitness  of  the  premises. 

—  Lucas  V.  Coulter,  104  Ind.  81. 

On  the  part  of  the  lessee,  or  tenant,  there  is  an  implied  cove- 
nant that  he  shall  pay  the  rent  stipulated  for. 

The  lessee  also  impliedly  covenants  to  repair,  and  if  the  leased 
premises  consist  of  a  farm,  it  is  implied  that  he  is  to  cultivate  it 
in  a  husbandlike  manner.  The  covenant  to  repair  is  not  to 
rebuild  when  the  property  is  burned  down,  but,  as  it  is  said,  to 
keep  it  ''wind  and  water  tight";  that  is,  to  keep  the  roof  from 
leaking  and  the  siding  tight.  The  premises  must  be  kept  in 
repair,  except  for  ordinary  wear  and  tear. 

An  implied  covenant  may  be  set  aside  by  express  covenants. 

Rights  and  Liabilities  under  a  Lease.  —  Aside  from  the  cove- 
nants in  a  lease  there  are  certain  rights  and  liabilities  which  arise 
from  the  relation  of  landlord  and  tenant.  In  the  absence  of  an 
agreement  to  the  contrary  the  tenant  is  entitled  to  the  exclusive 
possession  of  the  premises.  He  is  liable  for  waste  and  is  estopped 
from  denying  his  landlord's  title;  that  is,  the  tenant  cannot  for 
any  purpose  claim  that  the  premises  do  not  belong  to  his  landlord. 

If  a  tenant  recognizes  the  title  of  his  landlord  by  accepting  a  lease  or  by 
paying  the  rent,  he  will  be  estopped  during  the  term  of  his  tenancy  from 
disputing  it,  although  the  want  of  title  may  appear  from  the  landlord's  own 
testimony.  —  Gray  v.  Johnson,  14  N.  H.  414. 

The  tenant  is  entitled  to  emblements  when  his  estate  is  cut  off 
by  some  contingency  without  his  fault. 

Shoemaker  owned  some  land,  of  which  he  gave  a  deed  in  trust  to  Toms  to 
secure  a  loan.  Shoemaker  afterwards  leased  the  land  to  Worst  for  a  year 
and  Worst  paid  the  rent  in  full.  Before  Worst  had  harvested  his  crops  Toms 
foreclosed  his  claim  and  sold  the  property  to  Gray.  Gray  at  once  claimed 
the  crops  as  owner  of  the  land,  but  Worst  as  lessee  gathered  them  before 
leaving.  In  this  action  for  the  value  of  the  crops  it  was  held  that  the  lessee 
was  entitled  to  them  and  Gray  could  not  recover. 

—  Gray  v.  Worst,  129  Mo.  122. 

The  landlord  is  under  no  obligation  to  repair  unless  the  lease 
expressly  binds  him  to  such  duty.  And  he  is  entitled  to  the 
fixtures  annexed  to  and  made  a  part  of  the  realty.  The  ques- 
tions as  to  when  the  fixtures  may  be  removed  by  the  tenant,  and 


286  REAL  PROPERTY 

when  they  may  be  claimed  by  the  landlord,  will  be  discussed  in 

the  following  chapter  on  ''Fixtures." 

The  tenant  sued  the  landlord  for  the  value  of  a  front  window  in  the 
leased  store.  The  window  had  been  broken  by  a  storm  during  the  tenancy 
and  replaced  by  the  tenant,  the  landlord  having  refused  to  put  in  a  new  one. 
Held,  that  he  could  not  recover.  The  landlord  is  not  bound  either  to  repair 
leased  premises  himself  or  to  pay  for  the  repairs  made  by  his  tenant  unless 
he  has  expressly  contracted  to  make  the  repairs. 

—  Turner  v.  Townsend,  42  Nebr.  376. 

Assigning  or  Subletting  of  Lease.  —  Unless  the  tenant  is 
restrained  by  an  express  covenant  against  subletting  or  assigning, 
he  may  assign  or  sublet  his  lease  without  the  consent  of  the  land- 
lord. If  the  interest  granted  by  the  lessee  is  for  a  shorter  time 
or  for  rights  inferior  to  those  granted  in  his  own  lease,  it  is  a 
sublease. 

Where  a  lessee  executes  an  instrument  conveying  the  whole  of  his  un- 
expired term,  but  reserving  rent  at  a  rate  and  time  of  payment  different  from 
those  in  the  original  lease,  and  a  right  of  reentry  on  nonpayment  of  rent 
and  the  breach  of  other  conditions,  and  also  providing  for  a  surrender  of  the 
premises  to  him  at  the  expiration  of  the  time,  the  instrument  is  a  sublease 
and  not  an  assignment.  —  Collins  v.  Hasbrouck,  56  N.  Y.  157. 

And  in  the  case  of  a  sublease  the  subtenant  is  not  Hable  for 
rent  to  the  original  lessor,  but  only  to  the  original  lessee. 

If  the  interest  conveyed  by  the  tenant  is  his  whole  interest  in 
the  lease,  it  is  an  assignment  of  the  lease,  and  the  assignee  is  Ha- 
ble to  the  original  lessor  for  rent.  In  the  case  of  an  assignment 
of  the  lease  the  landlord  may  look  to  either  the  original  lessee 
or  to  the  assignee  of  the  lease  for  the  rent.  The  assignee  takes 
all  of  the  interest  of  the  original  tenant  and  is  bound  to  pay 
rent,  to  repair  and  to  use  the  property  in  any  special  way  pro- 
vided for  in  the  lease.  But  these  obligations  of  the  assignee  of 
the  lease  do  not  in  any  way  release  the  original  lessee  from  his 
obligation  to  his  lessor. 

Eviction.  —  At  the  expiration  of  the  lease  the  landlord  is  enti- 
tled to  the  possession  of  the  premises,  and  if  the  tenant  does  not 
surrender  them,  the  landlord  may  institute  proceedings  to  evict 
him.  The  statutes  in  the  different  states  provide  the  procedure 
by  which  the  tenant  holding  over  after  his  lease  has  expired  may 
be  evicted  on  short  notice.  This  is  termed  ''summary  proceed- 
ings."   This  form  of  procedure  is  also  provided  by  statute  for 


LANDLORD  AND  TENANT  287 

the  eviction  of  the  tenant  when  he  does  not  pay  his  rent.  The 
landlord  who  wishes  to  evict  a  tenant  by  summary  proceedings 
obtains  a  process  from  some  court  which  is  served  upon  the  ten- 
ant, and  if  it  is  found  by  the  court  when  the  case  comes  up  for 
a  hearing  that  the  landlord  is  entitled  to  the  possession  of  the 
premises,  the  court  empowers  one  of  its  officers  to  evict  the  ten- 
ant from  the  premises. 

As  a  result  of  the  shortage  of  houses  after  the  World  War, 
some  of  the  states  passed  laws  to  limit  increases  in  rent  and  to 
prevent  evictions  of  tenants  willing  to  pay  reasonable  rent.  This 
was  done  under  the  police  power  of  the  state,  to  protect  public 
health  against  profiteers. 

Where  the  tenancy  is  not  for  any  fixed  period,  but  is  a  ten- 
ancy from  year  to  year  or  month  to  month,  it  cannot  be  termi- 
nated by  either  party  except  by  notice.  Under  the  common  law 
a  tenancy  from  year  to  year  could  be  terminated  by  notice  six 
months  before  the  expiration  of  the  period,  and  in  the  case  of 
a  tenancy  for  a  shorter  period,  as  from  month  to  month,  by  a 
notice  equal  to  the  length  of  the  period. 

In  monthly  tenancies  a  month's  notice  to  quit  is  sufficient,  but  the 
notice  must  be  to  quit  at  the  end  of  one  of  the  monthly  periods. 

—  Stejfens  v.  Earl,  40  N.  J.  Law  128. 

Until  this  notice  has  been  given,  the  landlord  can  not  evict  the 
tenant,  and  until  the  tenant  has  given  a  like  notice  to  the  land- 
lord, he  is  liable  to  be  held  for  the  rent  unless  the  landlord  accepts 
his  surrender  of  the  premises.  The  statutes  in  the  different  states 
have  in  many  instances  changed  the  common  law  rule  and  a 
shorter  notice  is  rendered  sufficient. 

QUESTIONS 

1.  How  are  estates  for  years  created? 

2.  Must  a  lease  of  land  be  in  writing?    Explain.    . 

3.  What  are  the  usual  covenants  in  a  lease? 

4.  When  is  the  tenant  presumed  to  be  a  tenant  from  year  to  year? 

5.  What  are  the  usual  implied  covenants  in  a  lease?    Explain. 

6.  What  are  the  tenant's  rights  and  liabilities  under  a  lease? 

7.  What  are  the  landlord's  rights  and  liabilities  under  a  lease? 

8.  Has  a  tenant  a  right  to  sublet?    Explain. 

9.  In  case  of  an  assignment  of  a  lease  who  is  responsible  for  the  rent? 


288  REAL  PROPERTY 

10.  When  and  under  what  conditions  has  the  landlord  a  right  to  evict 
a  tenant? 

11.  What  are  the  notice  requirements  in  case  of  eviction? 

IMPORTANT  POINTS 

The  conditions  and  term,  and  the  rights  and  obligations  in  con- 
nection with  the  hdlding  of  land  constitute  "tenure." 

An  estate  is  a  specific  right  or  interest  in  land. 

Fee  simple  means  a  full  ownership,  clear  of  any  conditions, 
limitations,  or  restrictions. 

A  freehold  is  an  estate  of  inheritance  or  a  life  estate.  It  has  an 
indefinite  duration. 

A  leasehold  is  an  estate  of  definite  or  fixed  duration. 

An  estate  of  inheritance  is  one  which  descends  to  the  heirs  of  the 
owner  upon  his  death. 

A  person  who  possesses  a  right  to  real  property  during  his  life  or 
the  life  of  another  has  an  estate  for  life. 

All  leaseholds  of  real  property,  regardless  of  the  term,  are  con- 
sidered personal  property. 

Realty  covenants  are  written  agreements  fixing  rights  and  lia- 
bilities. 

Real  property  is  acquired  by  occupancy,  prescription,  will,  inher- 
itance, or  deed. 

A  will  made  by  the  owner  of  property  is  a  means  of  disposing  of 
the  property  after  his  death. 

A  will  must  be  witnessed  by  two  persons  who  are  not  beneficiaries. 

When  real  property  is  left  by  will,  it  is  said  to  be  devised  and  the 
person  to  whom  it  is  willed  takes  it  by  devise. 

When  a  person  dies  without  making  a  will,  his  property  descends 
to  his  heirs  by  inheritance. 

When  property  descends  by  inheritance  the  law  determines  which 
relative  shall  take  the  property. 

The  purchaser  of  mortgaged  property  who  assumes  the  mortgage 
becomes  liable  absolutely  for  the  mortgage;  while  the  purchaser 
who  accepts  the  property  subject  to  the  mortgage,  without  assuming 
the  mortgage,  is  liable  only  to  the  extent  of  his  equity  or  interest  in  the 
property. 

The  special  kinds  of  mortgages  are: 

I.    Deeds  of  trust.     A  mortgage  may  be  given  as  a  deed  of 

trust  to  a  third  party  as  trustee. 
2*   Purchase  money  mortgages.     These  are  mortgages  given 

for  part  or  the  whole  of  the  purchase  price  of  land. 
3.   Building  and  loan  mortgages.     These  are  given  to  secure 
funds  for  the  purpose  of  erecting  buildings. 

When  one  person  holds  property  for  the  benefit  of  another,  he  is 
said  to  hold  it  in  trust  as  a  trustee. 


TEST  QUESTIONS  289 

Restrictions  in  deeds  for  the  benefit  of  the  surrounding  property 
are  binding  so  long  as  they  are  not  against  public  policy. 


TEST  QUESTIONS 

1.  What  are  the  ways  by  which  title  to  real  property  may  be  acquired? 

2.  A  has  a  farm  upon  which  there  is  a  pond  one  half  mile  in  diameter. 
Has  A  the  right  to  prohibit  people  from  fishing  and  rowing  upon  this  pond? 

3.  A's  farm  has  a  small  river  running  through  it.  Has  A  the  exclusive 
right  to  fish  on  the  part  running  through  his  property? 

4.  In  the  above  case,  if  the  river  had  been  a  navigable  stream,  what 
exclusive  rights  would  A  have  had? 

5.  Give  an  illustration  of  (a) corporeal  real  property;  (b)  incorporeal  real 
property;  (c)  easement. 

6.  Why  is  it  advisable  before  buying  real  property  to  have  the  title 
searched? 

7.  What  is  an  abstract  of  title? 

8.  Wilson  owns  the  absolute  title  in  a  farm.  He  dies  leaving  his  widow 
the  use  of  it  during  the  remainder  of  her  life.  She  leases  it  to  Johnson  for  one 
year.  What  estate  in  the  land  did  Wilson  have?  What  estate  did  his  widow 
receive  after  his  death?  What  estate  did  Johnson  have?  Were  there 
other  rights  in  the  property? 

9.  (a)  In  the  above  case  could  Wilson's  widow  grant  to  any  one  an 
estate  in  the  land  that  would  exist  beyond  her  own  life?  (b)  Could  she  grant 
an  estate  in  the  land  that  would  last  as  long  as  she  hved? 

10.  Had  Wilson's  widow,  in  question  8,  the  right  to  cut  timber  on  the 
farm  for  the  purpose  of  repairing  the  buildings?  For  use  as  fuel?  To  sell  for 
lumber?     To  use  in  manufacturing  wagons? 

11.  Explain  what  is  meant  when  it  is  said  that  a  life  tenant  must  not 
commit  waste. 

12.  Suppose  there  was  a  coal  mine  on  Wilson's  farm  in  question  8,  which 
he  had  been  working  during  his  life.  Can  his  widow  continue  to  work  it  under 
her  hfe  estate?     Can  she  open  it  and  work  it  if  it  had  never  been  worked? 

13.  If  Wilson's  widow  should  sow  a  field  of  wheat  on  the  farm  and  then 
die  before  it  was  harvested,  would  the  wheat  belong  to  her  estate,  or  to  the 
person  to  whom  Wilson  had  left  the  farm  after  his  widow's  death? 

14.  Harden,  a  married  man,  buys  a  farm  for  $5000,  and  gives  back  a 
purchase  money  mortgage  for  $4000,  paying  the  balance  of  $1000  in  cash. 
Harden's  widow  does  not  join  in  the  mortgage.    Upon  Harden 's  death  will 


290  REAL  PROPERTY 

his  widow  have  dower  in  the  whole  farm,  or  will  the  mortgage  which  she  did 
not  sign  come  in  ahead  of  it? 

15.  If,  in  the  above  case,  the  mortgage  given  by  Harden  had  not  been  a 
purchase  money  mortgage,  but  had  been  given  some  years  after  Harden 
had  purchased  the  farm  and  his  wife  had  not  joined  in  it,  would  the  widow's 
dower  right  be  subject  to  the  mortgage? 

16.  Property  is  conveyed  to  A  to  hold  in  trust  for  B,  a  minor  child, 
until  he  shall  become  of  age,  the  use  and  benefit  of  the  property  to  go  to  B. 
What  estate  in  the  land  has  A?     What  estate  has  B  ? 

17.  A  gave  a  deed  to  B.  In  the  granting  clause  it  recited  that  an 
absolute  conveyance  was  given  to  B.  In  the  habendum  it  recited  that  B  had 
a  title  in  fee  subject  to  a  life  estate  in  C.  What  estate  did  B  get  under  the 
deed? 

18.  Is  a  deed  valid  as  between  the  parties  when  it  is  not  recorded?  Is 
it  valid  as  to  third  parties  who  had  no  notice  of  it  and  who  acquired  rights 
to  the  land  after  it  was  given? 

19.  How  does  the  transfer  of  property  on  which  there  is  a  mortgage 
affect  the  mortgage? 

20.  Does  the  covenant  to  repair  require  the  rebuilding  of  the  premises 
if  they  are  burned  down? 

21.  Emery  hires  a  building  for  one  year  and  then  leases  all  but  one 
room  to  Boland  for  the  whole  length  of  his  term.  Which  does  this  constitute, 
an  assignment  or  a  subletting? 

22.  If  in  the  above  case  Emery  had  rented  the  entire  building  for  the 
full  term  of  his  lease  to  Boland  without  any  restrictions,  what  would  it 
have  constituted,  an  assignment  or  a  subletting? 

23.  If  the  tenant's  lease  of  the  property  is  for  a  definite  time,  how 
may  the  landlord  evict  him  at  the  end  of  his  term,  provided  he  does  not 
voluntarily  surrender  the  property? 

24.  In  the  purchase  of  mortgaged  property  what  is  the  difference 
between  the  purchaser  assuming  the  mortgage  and  buying  the  property 
subject  to  the  mortgage? 

CASE  PROBLEMS 

Give  the  decision  and  the  principle  of  law  involved  in  each  case. 

I.  Fisher  draws  a  deed  of  a  house  and  lot,  naming  his  grandson  as 
grantee.  He  places  the  deed  in  his  safe,  and  after  two  years  dies.  The  deed 
is  found  and  the  grandson  claims  the  property  under  it.  Can  he  hold  the 
property? 


CASE  PROBLEMS  291 

2.  If,  upon  drawing  the  deed  in  the  preceding  case,  Fisher  had  given  it 
to  his  banker  to  hold  until  his  death  and  to  deliver  to  the  grandson  at  that 
time,  could  the  grandson  hold  the  land?  What  kind  of  delivery  to  the 
banker  would  this  have  been? 

3.  Hall  sold  a  farm  to  Dexter.  In  the  deed  there  was  a  covenant  of 
quiet  enjoyment.  After  Dexter  obtained  possession.  Griffin,  a  third  party, 
claimed  title  to  the  farm  and  brought  an  action  against  Dexter  to  recover  it. 
In  this  case  Griffin  was  defeated,  as  the  court  decided  he  had  no  claim  what- 
ever. Was  Hall's  covenant  of  quiet  enjoyment  broken?  If  Griffin  had' 
recovered  in  his  action,  would  the  covenant  of  quiet  enjoyment  have  been 
broken? 

4.  If  in  the  above  case  Hall's  deed  had  contained  a  covenant  against 
incumbrances  and  there  had  existed  a  judgment  on  record  against  Hall 
which  was  a  lien  upon  the  property,  would  the  covenant  have  been  broken? 
If  there  had  been  unpaid  taxes  against  the  property,  would  the  covenant 
have  been  broken? 

5.  If  Hall's  deed  to  Dexter,  in  problem  3,  had  contained  a  warranty  of 
title,  and  after  Dexter  had  possession  Griffin  had  gone  upon  the  land  and 
removed  a  building  which  he  had  erected  temporarily  and  which  he  had  the 
right  under  an  agreement  to  remove,  would  the  covenant  have  been  broken? 

6.  Miner  rents  a  house  and  lot  of  Slater  for  one  year  at  the  annual 
rental  of  $200.  At  the  end  of  the  year  nothing  is  said  and  he  remains  for 
another  year,  paying  his  rent.  After  remaining  in  the  house  for  two  months 
of  the  third  year  Miner  vacates  it.  Slater  claims  the  rent  for  the  whole  year. 
Can  he  recover? 

7.  Hamilton  rents  a  house  and  lot  of  Turner.  He  does  not  pay  his 
rent  and  Turner  sues  him.  Hamilton  claims  that  Turner  is  not  the  owner  of 
the  property,  and  it  develops  upon  the  trial  that  a  third  party  has  a  para- 
mount title.     Can  Hamilton  defeat  Turner's  suit  for  rent  in  this  way? 

8.  Fox  leases  his  farm  to  White  for  one  year.  Brown,  a  mortgagee, 
forecloses  a  mortgage  on  the  farm  against  Fox  and  sells  it  to  Wilson,  who 
takes  possession  and  ousts  White  before  he  has  an  opportunity  of  harvesting 
his  crops.     To  whom  do  the  crops  belong,  Wilson  or  White? 

9.  Snow  rented  part  of  his  house  to  Gates  for  one  year  on  an  oral 
contract,  rent  payable  monthly  in  advance.  Gates  paid  the  first  month's 
rent  and  at  the  end  of  two  weeks  notified  Snow  that  he  had  decided  to  move. 
Is  he  held  by  the  lease?     Explain. 

10.   A  father  transferred  to  his  son  for  a  consideration  of  $1  a  piece  of 
real  estate  worth  $5000.     The  deed  was  duly  executed  and  delivered.    Can 


292  REAL  PROPERTY 

the  son  defend  successfully  a  suit  to  set  aside  the  transfer  on  the  ground  of 
inadequate  consideration?     Explain  fully. 

11.  In  a  purchase  of  a  house  and  lot  from  a  married  man,  you  insist 
that  his  wife  join  in  making  the  deed.  What  is  your  reason  for  doing  so? 
Would  you  likewise  require  that  a  husband  join  in  a  deed  made  by  a  mar- 
ried woman?     Explain. 

12.  L.  K.  Ward,  a  married  man,  died.  His  will  disposed  of  his  prop- 
erty as  follows:  daughter,  $6000  cash;  son,  200  acre  farm;  wife,  $6000  cash. 
What  are  the  widow's  rights? 

13.  Milton  contracted  orally  to  sell  to  the  Hartman  Lumber  Co.  all  the 
standing  timber  on  a  certain  wood  lot  owned  by  Milton.  Before  the  lumber 
company  started  to  cut  and  haul  the  logs  Milton  served  notice  on  them  not 
to  touch  the  timber  as  they  would  do  some  damage  crossing  a  field  belonging 
to  him  which  he  had  agreed  to  let  them  cross.  What  are  the  rights  of  the 
parties? 

14.  The  owner  of  a  farm  agreed  to  give  a  certain  person  a  deed  of  it  as 
security  for  a  debt.  In  conformity  with  this  agreement,  the  owner  of  the 
farm  immediately,  upon  returning  to  his  home,  executed  and  acknowledged 
the  deed  and  sent  it  to  the  County  Clerk's  office  to  be  recorded.  The  person 
in  whose  favor  the  deed  was  executed  did  not  know  that  it  was  made  and 
left  at  the  County  Clerk's  office,  as  neither  he  nor  any  person  representing 
him  was  present  to  receive  it.  Was  this  a  good  delivery  within  the  law? 
Explain. 


FIXTURES 

Personal  or  Real  Property.  —  We  understand  in  a  general  way 
that  real  property  is  land  and  rights  concerning  it.  As  distin- 
guished from  this,  personal  property  is  property  of  a  personal  or 
removable  nature,  and  includes  all  property  rights  not  included 
in  the  classification  of  real  property.  Personal  property  is  also 
called  chattels.  We  often  find  much  difficulty  in  distinguishing 
between  the  two  classes  of  property.  It  is  plain  that  a  house  and 
lot  or  farm  is  real  property,  and  it  is  equally  apparent  that  a 
horse  and  wagon  or  a  suit  of  clothes  is  personal  property.  As  we 
have  seen,  also  (page  283),  a  leasehold  interest  in  real  estate  is 
personal  property. 

Personal  property  also  includes  "choses  in  action";  that  is, 
rights  of  action  against  another  person  for  money  or  property. 
Promissory  notes,  drafts,  shares  of  stock,  corporation  bonds  and 
debts  are  all  choses  in  action.  Any  right  of  action  for  damage  to 
property  is  a  chose  in  action. 

Patents,  trade-marks,  and  copyrights  are  personal  property 
and  are  also  choses  in  action.  They  are  forms  of  property  which 
may,  under  certain  conditions,  give  rise  to  right  of  action  to 
protect  the  interests  of  the  party  concerned. 

In  all  the  above  cases  the  laws  are  clear.  But  the  classifica- 
tion of  certain  articles  known  as  fixtures,  which  may  be  either 
personal  or  real  property,  is  less  clearly  defined.  The  general 
rule  is  that  a  fixture  is  real  property  when  it  is  actually  and 
permanently  annexed  to  the  land  or  is  to  be  used  in  connection 
therewith.  A  fixture  is  personal  property  when  it  is  detached  or 
movable.  This  general  rule  is  modified  by  many  special  rules  in 
specific  cases. 

Tests  concerning  Fixtures.  —  Fixtures  are  chattels,  either  ac- 
tually or  constructively  affixed  to  the  land.  In  some  cases  they  can 
not  be  removed  and  are  considered  part  of  and  pass  with  the  land, 
while  under  other  conditions  they  may  be  separated  from  the 
realty  and  do  not  pass  with  it.  For  example,  fence  posts  which 
have  been  cut  and  used  for  building  or  repairing  a  fence  are  a 

293 


294  FIXTURES 

part  of  the  real  property,  but  fence  posts  which  have  been  cut 
to  sell  would  be  considered  personal  property.  The  early  com- 
mon law  was  most  favorable  to  the  landowner,  regarding  any- 
thing attached  to  the  realty  as  his  property,  but  the  rule  was 
relaxed,  at  first  in  favor  of  the  tenant  who  erected  fixtures  for  use 
in  his  trade  or  business,  which  were  held  to  be  removable.  Now, 
however,  the  question  arises  not  only  between  landlord  and 
tenant,  but  also  between  mortgagor  and  mortgagee,  and  vendor 
and  vendee.  A  person  seUing  his  farm  must  know  what  he  can 
remove  and  what  he  has  sold  with  the  land.  The  tenant  must 
determine  what  he  can  take  with  him  and  what  passes  to  the 
landlord  because  of  its  attachment  to  the  realty.  Different  rules 
have  been  laid  down  by  different  courts. 

One  of  the  tests  often  applied  is  the  intention  of  the  party 
annexing  the  chattel  to  the  land.  This  intention  is  inferred  from 
the  nature  of  the  article  affixed,  the  relation  of  the  party  making 
the  annexation  with  the  owner  of  the  land,  the  structure  and  mode 
of  the  annexation,  and  the  purpose  for  which  it  is  to  be  used. 

Hinkley  entered  into  possession  of  a  tract  of  land  under  a  contract  for 
its  purchase,  and  erected  large  and  substantial  buildings  with  engines  and 
machinery  for  manufacturing  an  extract  of  bark  for  tanning  purposes. 
Hinkley  failed  to  pay  for  the  land,  so  never  acquired  title.  In  an  action  to 
recover  the  machinery  and  engines  it  was  held  that  they  were  a  part  of  the 
realty,  and  could  not  be  sold  as  personal  property  as  against  the  owners  of 
the  land.  —  Hinkley  v.  Black,  70  Maine  473. 

It  seems  that  there  are  other  tests  that  have  to  be  applied  in 
connection  with  the  intent,  to  determine  whether  or  not  the 
chattel  is  a  part  of  the  realty.  One  is  the  mode  and  degree  of 
the  annexation.  That  is,  if  the  chattel  is  so  firmly  and  securely 
affixed  to,  and  incorporated  into,  the  building  that  it  can  not  be 
removed  without  injury  to  itself  and  the  building  it  is  generally 
not  removable.  Under  the  common  law  the  mode  and  degree 
of  annexation  was  practically  the  controlling  question. 

Looms  in  a  woolen  factory,  connected  with  the  motive  power  by  leather 
bands  and  so  attached  to  the  building  by  screws  holding  them  to  the  floor 
that  they  could  be  removed  without  injury  to  themselves  or  the  building,  are 
chattels.    The  question  arose  between  the  mortgagor  and  mortgagee. 

—  Murdoch  v.  Giford,  18  N.  Y.  28. 

An  engine  used  in  a  building  and  so  placed  that  it  can  not  be  removed 
without  taking  down  part  of  the  building  is  a  fixture.    The  engine  in  this 


TESTS  CONCERNING  FIXTURES  295 

case  could  not  be  removed  without  taking  the  boards  off  the  side  of  the 
building,  and  the  boilers  were  set  in  brick,  requiring  the  wall  to  be  torn  down 
to  remove  them.  In  this  case  the  question  arose  between  the  grantor  and 
the  purchaser.  —  Despatch  v.  Bellamy,  12  N.  H.  205. 

A  person  may  not  intend  to  make  a  permanent  improvement, 
but  the  chattel  may  be  so  firmly  annexed  that  the  law  will  not 
permit  him  to  carry  out  his  intention  of  removing  it.  In  such  a 
case  the  damage  to  the  realty  must  be  very  pronounced  to 
constitute  the  chattel  a  part  of  the  real  property  if  it  is  the 
expressed  intent  of  the  party  that  the  chattel  shall  remain 
personalty. 

But,  on  the  other  hand,  the  fact  that  it  may  be  removed  with- 
out such  injury  does  not  necessarily  make  it  personalty. 

Fencing  material  that  has  been  used  as  part  of  the  fences  on  a  farm,  but 
is  temporarily  detached  without  any  intent  to  divert  it  from  such  use,  is  a 
part  of  the  realty  and  passes  by  a  conveyance  of  the  farm  to  a  purchaser. 

—  Goodrich  v.  Jones,  2  Hill  (N.  Y.)  142. 

Gas  pipes  running  under  the  floors  and  between  the  walls  are 
not  removable  fixtures,  but  gas  fixtures  and  chandeliers  screwed 
in  through  holes  in  the  walls  or  floors  are  removable.  Stoves 
and  furnaces  put  up  in  the  usual  way  by  a  tenant  are  treated  as 
furniture  and  are  removable,  but  if  built  into  brickwork  they 
are  nonremovable  fixtures. 

Gas  fixtures  which  are  screwed  on  to  the  gas  pipes,  and  mirrors  which 
are  not  set  into  the  wall  but  are  supported  by  hooks  so  that  they  can  be  re- 
moved without  injuring  the  walls,  form  no  part  of  the  realty  and  do  not 
pass  by  deed  or  mortgage  of  the  premises. 

—  McKeage  v.  Hanover  Ins.  Co.,  81  N.  Y.  $8. 
An  electric  chandelier,  an  annunciator  and  simJlar  articles  attached  to  a 
house  by  the  tenant  for  his  own  convenience,  and  removable  without  injury 
to  the  building,  form  no  part  of  the  realty. 

—  Raymond  v.  Strickland,  1 24  Ga.  504. 
A  boiler  installed  by  a  tenant  to  replace  an  inadequate  boiler,  screwed 
to  pipes  running  through  the  building,  but  removable  without  injury,  was 
not  a  fixture  and  the  tenant  was  entitled  to  remove  it. 

—  McLain  Inv.  Co.  v.  Cunningham,  113  Mo.  Appeal  519. 

Another  test  is  the  appropriation  of  the  chattel  to  the  use  or 
purpose  of  that  part  of  the  realty  to  which  it  is  connected.  It 
seems  that  an  article  which  is  essential  to  the  use  for  which  the 
building  or  land  is  designed,  or  which  is  especially  adapted  to 


296  FIXTURES 

the  place  where  it  is  erected,  is  regarded   as  a  nonremovable 
fixture,  although  it  is  but  slightly  connected  with  the  realty. 

Articles  such  as  shelving,  racks,  counters,  cases,  etc.,  although  personal 
in  their  nature,  are  realty  when  made  to  be  used  with  real  estate  and  essential 
to  its  beneficial  use.  —  Bullard  v.  Hopkins,  128  Iowa  703. 

An  engine  and  boiler,  bought  by  the  owner  of  a  mill  and  hauled  to  the 
mill  with  the  intention  of  attaching  them  thereto,  are  realty  even  if  not 
actually  attached,  when  they  are  necessary  for  the  use  of  the  mill. 

—  Patton  V.  Moore,  16  W.  Va.  428. 

Poles  used  necessarily  in  cultivating  hops,  but  which  are  taken  down  for 
the  purpose  of  gathering  the  crop  and  piled  in  the  yard  with  the  intention  of 
being  replaced  in  season  next  year,  are  a  part  of  the  realty. 

—  Bishop  V.  Bishop,  11  N.  Y.  123. 

A  mortgagee  claimed  the  machinery  in  a  building  erected  expressly  for 
use  as  a  twine  factory.  The  machinery  was  heavy  and  was  fastened  to  the 
floor  by  bolts,  nails,  and  cleats  and  was  attached  to  the  gearing.  Most  of  the 
machinery  could  have  been  removed  without  material  injury  to  the  building 
and  used  elsewhere.  It  was  proved  that  the  machinery  was  put  in  the 
building  for  permanent  use.  Held,  that  the  evidence  was  sufficient  to  find 
an  intent  to  make  the  machinery  part  of  the  realty.  The  court  said  the 
criterion  of  a  fixture  is  the  union  of  three  requisites:  i,  Actual  annexation 
to  the  realty  or  something  appurtenant  thereto;  2,  Application  to  the  use  or 
purpose  to  which  that  part  of  the  realty  to  which  it  is  connected  is  appro- 
priated; 3,  The  intention  of  the  party  making  the  annexation  to  make  a 
permanent  accession  to  the  realty.  In  such  cases  the  court  said  the  purpose 
of  the  annexation  and  the  intent  with  which  it  is  made  are  the  most  important 
considerations. —  McRea  v.  Central  Bank,  66  N.  Y.  489. 

This  last  rule  in  the  case  of  McRea  v.  Central  Bank  does  not 
apply  between  landlord  and  tenant,  as  it  is  held  that  the  tenant 
cannot  intend  articles  for  permanent  use  on  land  that  does  not 
belong  to  hirn.  This  rule  inaugurates  the  theory  of  constructive 
annexation  and  is  contrary  to  the  common  law,  which  requires 
actual  annexation  to  the  realty. 

The  owner  of  realty,  after  giving  a  mortgage,  placed  on  his  ground  in 
front  of  his  house  a  statue  of  Washington,  made  by  himself,  and  weighing 
about  three  tons.  It  was  on  a  base  three  feet  high.  This  base  rested  upon  a 
foundation  built  of  mortar  and  stone.  The  statue  was  not  fastened  to  the 
base,  nor  the  base  to  the  foundation.  Held,  that  the  statue  was  a  part  of  the 
realty  and  that  it  was  as  firmly  attached  to  the  soil  by  its  own  weight  as  it 
could  have  been  by  clamps  and  screws.  In  the  same  case  a  sun  dial,  similarly 
placed,  was  also  held  to  be  realty.  —  Snedeker  v.  Waring,  12  N.  Y.  170. 

The  builders  of  a  church  left  a  recess  in  which  an  organ  was  to  be  placed. 
The  organ  was  required  to  complete  the  design  and  finish  of  the  building  and 
was  attached  to  the  floor  and  intended  to  be  permanent.  Held,  that  the  organ 
was  a  part  of  the  realty  and  passed  to  the  purchaser  of  the  land. 

—  Rogers  v.  Crow,  40  Mo.  91. 


RELATION  OF  THE  PARTIES  297 

Force  pumps,  pipes,  and  shafting,  and  machinery  attached  by 
spikes,  nails,  and  bolts,  are  part  of  the  realty. 

It  was  held,  that  machinery  used  in  a  sash  and  blind  factory  and  attached 
to  the  mill  by  spikes,  bolts,  and  screws,  and  which  was  operated  by  belts 
running  from  the  permanent  shafting  driven  by  a  water  wheel  under  the 
mill,  was  part  of  the  realty.  —  Symonds  v.  Harris,  51  Maine  14. 

Under  the  rule  of  constructive  annexation  some  cases  hold 
that  machinery,  permanent  in  its  character  and  essential  for  the 
purposes  of  the  building,  becomes  realty  although  not  actually 
attached  thereto. 

Illustrations  of  this  class  of  fixtures  are  ponderous  machinery 
kept  in  place  by  its  own  weight,  cotton  gins,  and  duplicate 
rollers  for  a  rolHng  mill,  all  of  which  are  held  to  pass  with  the 
realty. 

A  carding  machine  not  fastened  to  the  house  and  requiring  several  men 
to  move  it,  was  held  to  be  a  fixture,  and  passed  with  the  land  to  a  purchaser. 

—  Deal  V.  Palmer,  72  N.  C.  582. 

Other  cases  hold  that  machinery  is  personal  property  unless 

actually  annexed.     Such  cases  hold  that  heavy  machinery  in  a 

factory  screwed  to  the  floor  but  removable  without  injury  is  not 

realty. 

Lathes,  planers,  and  similar  machines,  each  a  complete  machine  and 

fastened  to  the  floor  by  screws  to  keep  it  steady  in  operation,  were  not 

covered  by  a  real  estate  mortgage  as  they  had  not  become  part  of  the  realty. 

—  Crane  Iron  Works  v.  Wilkes,  64  N.  J.  Law  193. 

Relation  of  the  Parties.  —  The  relation  of  the  parties  has  some 

weight  in  determining  the  character  of  the  fixtures.    As  between 

landlord  and  tenant  the  presumption  is  that  tenants  do  not 

intend  the  improvements  to  be  additions  to  the  realty,  and  they 

are  therefore  allow^ed  greater  rights  in  removing  the  chattels  than 

any  other  class  of  persons.     For  the  encouragement  of  trade 

and  the  promotion  of  industry  the  rule  has  been  established  that 

trade  fixtures  erected  by  a  tenant  are  removable.     A  carpenter 

shop,  a  ballroom,  and  a  bowling  alley  erected  on  blocks  or  posts 

have  all  been  held  to  be  removable. 

A  scenic  railway,  consisting  of  a  platform,  undulating  tracks,  machinery, 
etc.,  erected  by  a  tenant  on  leased  ground,  was  a  trade  fixture  and  could  be 
removed  by  the  tenant  during  his  term. 

—  Thompson  Scenic  Ry.  Co.  v.  Young,  90  Md.  278. 


298  FIXTURES 

As  between  landlord  and  tenant  under  a  mining  lease,  engines  and  boilers 
erected  by  the  tenant  on  brick  and  stone  foundations,  bolted  down  solidly 
to  the  ground  and  walled  in  with  brick  arches;  also  dwelling  houses  erected 
by  the  tenant  for  miners  to  live  in,  standing  on  posts  or  dry  stone  walls, 
where  the  intent  was  not  to  make  them  a  part  of  the  realty  but  merely  to 
use  them  in  the  mining  operations,  will  be  regarded  as  "trade  fixtures"  and 
may  be  removed  by  the  tenant  at  or  before  the  termination  of  the  lease. 

—  Conrad  v.  Saginaw  Mining  Co.,  54  Mich.  249. 

As  between  landlord  and  tenant  wooden  structures  or  buildings  resting 
by  their  own  weight  on  flat  stones  laid  upon  the  surface  of  the  ground  without 
other  foundation  are  not  part  of  the  realty.  But  if  the  building  is  a  per- 
manent structure  on  a  foundation  it  becomes  part  of  the  real  estate. 

—  Carlin  v.  Ritter,  68  Md.  478. 

The  parties  may  agree  that  the  chattels  annexed  are  to 
remain  as  personalty,  and  effect  will  be  given  to  the  agreement. 

The  tenant  must  exercise  his  right  to  remove  fixtures  before 

the  expiration  of  his  term.    If  he  does  not  remove  them  before 

he  surrenders  the  premises,  he  can  not  reenter  and  claim  them. 

McCaddon  after  his  lease  had  expired  entered  upon  plaintiff's  premises 
to  remove  a  vault  and  safe  he  had  constructed,  and  an  action  was  brought 
to  restrain  him  from  removing  them.  Held,  that  the  tenant  could  not  exer- 
cise his  right  of  removing  trade  fixtures  after  he  had  surrendered  possession  of 
the  premises.  —  Dostal  v.  McCaddon,  35  Iowa  318. 

When  the  question  arises  between  vendor  and  vendee  or 
mortgagor  and  mortgagee  the  presumption  is  stronger  against 
the  vendor  and  mortgagor,  as  being  the  owners  of  the  realty  they 
are  supposed  to  have  intended  the  improvements  to  be  perma- 
nent. 

The  tenant  placed  on  leased  land  an  engine  and  other  appliances  for 
working  oil  and  gas  wells,  under  a  lease  which  provided  that  the  tenant 
could  at  any  time  remove  all  machinery  and  fixtures.  It  was  held  that  the 
articles  did  not  become  part  of  the  realty,  but  could  be  removed  by  the 
tenant  within  a  reasonable  time  after  the  termination  of  the  lease. 

—  Gartlan  v.  Hickman,  56  W.  Va.  75. 

Stage  appointments  and  theater  fittings,  such  as  scenery,  curtains, 
ropes  for  scene  shifting,  opera  chairs  screwed  to  the  floor,  etc.,  having  been 
specially  made  and  so  far  as  their  nature  permitted,  affixed  to  the  realty, 
were  fixtures  and  passed  to  a  purchaser  of  the  realty. 

—  Oliver  v.  Lansing,  59  Nev.  219. 

QUESTIONS 

1.  What  does  personal  property  include? 

2.  What  are  fixtures?  They  may  be  classified  as  what  kind  of  property? 

3.  How  may  a  fixture  be  annexed  to  realty? 


IMPORTANT  POINTS  299 

4.  When  is  a  fixture  said  to  be  realty? 

5.  When  is  a  fixture  said  to  be  personalty? 

6.  What  is  the  most  important  test  to  be  applied  in  case  a  dispute  arises 
as  to  whom  the  fixture  belongs? 

7.  From  what  is  this  test  of  ownership  inferred? 

8.  Under  the  common  law,  what  was  the  most  important  test? 

.  9.  In  what  way  may  the  purpose  of  a  person,  who  did  not  intend  to 
make  a  fixture  permanent,  be  defeated? 

10.  Is  a  fence  inclosing  a  lot  personalty  or  realty?    Why? 

11.  The  fence  is  taken  down.  Is  the  fence  material,  which  is  on  the  lot, 
personalty  or  i^ealty?    Why? 

12.  Are  gas  and  water  pipes  attached  to  a  house  and  running  through 
it,  personalty  or  realty? 

13.  A  tenant  installs  lighting  fixtures  for  his  own  use  in  a  house  which 
is  not  equipped  with  them.    Has  he  a  right  to  remove  them? 

14.  When  must  he  exercise  this  right? 

15.  A  tenant  supplied  his  own  hot-air  furnace,  which  was  not  supplied 
in  a  house  piped  for  one.  He  set  the  furnace  in  the  cellar  and  connected  it 
with  the  pipes  already  in  the  house.    Has  he  a  right  to  remove  it? 

16.  What  do  you  understand  by  mode  of  annexation? 

17.  What  do  you  understand  by  degree  of  annexation? 

18.  Mention  the  three  requisites  which  are  necessarily  combined  to 
make  a  fixture  a  part  of  the  realty  as  laid  down  in  McRea  against  Central 
Bank. 

19.  Are  improvements  made  by  the  mortgagor  on  mortgaged  property 
covered  by  the  mortgage?    Give  an  illustration. 

20.  What  is  constructive  annexation? 

21.  Downing  sold  a  farm  on  which  there  was  a  well  equipped  with  a 
force  pump  connected  with  pipes  to  the  house  and  barn.  Has  he  a  right  to 
remove  this  pumping  system? 

22.  Are  there  any  conditions  und^r  which  he  might  remove  the  pumping 
system? 

23.  Explain  the  meaning  of  "relation  of  the  parties"  as  applied  to 
fixtures. 

24.  What  are  trade  fixtures? 

25.  Are  trade  fixtures  as  a  rule  removable  by  the  tenant?    Explain. 

IMPORTANT  POINTS 

A  fixture  may  be  either  personal  or  real  property. 

Fixtures  are  chattels  affixed  to  realty  or  to  be  used  in  connection 
therewith. 

Mode  of  annexation,  purpose  for  which  it  is  to  be  used,  intention 
and  relation  of  the  parties  annexing  the  fixture  are  factors  in  determin- 
ing whether  it  is  personalty  or  realty. 

The  intention  of  the  party  annexing  the  fixture  is  the  most  impor- 
tant factor  in  determining  its  ownership. 


300  FIXTURES 

Improvements  in  the  way  of  fixtures  which  are  annexed  per- 
manently to  mortgaged  realty  by  the  mortgagor  are  covered  by  the 
mortgage. 

In  case  a  mortgage  on  realty  is  foreclosed  and  the  property  sold 
to  satisfy  the  debt,  all  fixtures  which  are  considered  a  part  and  parcel 
of  the  realty  are  included  in  the  sale. 

Trade  fixtures  are  fixtures  used  in  connection  with  a  business. 

As  a  rule  "  trade  fixtures  "  put  in  by  the  tenant  are  his  property  and 
he  has  a  right  to  remove  them. 

A  tenant  must  exercise  his  right  of  removal  of  fixtures  before 
vacating  or  giving  up  his  right  of  possession. 

When  the  owner  of  realty  annexes  a  fixture  the  presumption  is 
that  he  intended  it  as  a  part  of  the  realty. 

CASE  PROBLEMS 

Give  the  decision  and  the  principle  of  law  involved  in  each  case. 

1.  Mowery  purchased  a  large  building  for  factory  purposes  for  which 
he  gave  a  purchase  money  mortgage  for  $5000,  Afterwards  he  installed  a 
quantity  of  machinery  for  use  in  connection  with  the  building.  His  business 
was  not  successful,  and  when  he  failed  to  pay  off  the  mortgage,  the  mortgagee 
foreclosed  and  sold  the  property.  Mowery  claimed  the  machinery.  What 
are  the  rights  of  the  parties? 

2.  Johnson  sold  a  factory  building  in  which  were  a  number  of  machines 
connected  therewith  by  means  of  screws,  shafts,  and  belts.  Nothing  was 
said  about  them  at  the  time  of  the  sale.  Johnson  did  not  intend  to  sell  the 
machines,  but  after  the  sale  the  buyer  would  not  allow  Johnson  to  remove 
them.    Who  is  entitled  to  the  machines?     Explain. 

3.  Lampson  leased  a  building  in  which  he  constructed  a  boiler  which 
could  not  be  removed  without  tearing  down  a  portion  of  the  end  wall  of  the 
building.  When  the  lease  expired  Lampson  attempted  to  remove  the  boiler 
and  the  owner  of  the  building  stopped  him.  How  should  this  case  be 
decided? 

4.  Manker  sold  a  farm  on  which  was  piled  a  quantity  of  fencing  ma- 
terial which  had  been  used  on  the  farm  and  was  to  be  used  again.  After  the 
sale  Manker  moved  this  material  away  and  the  purchaser  brought  action 
for  damages.    Should  he  succeed? 

5.  Dunn  rented  a  house  which  was  piped  for  gas,  but  was  not  equipped 
with  fixtures  for  lighting.  Dunn  supplied  the  necessary  fixtures.  Before  the 
lease  expired  the  owner  of  the  house  served  notice  on  Dunn  not  to  remove  the 
fixtures.     What  are  the  rights  of  the  parties?     Explain. 

6.  Wright  rented  a  building  for  use  as  a  store,  in  which  he  installed 
shelves,  racks,  and  various  store  accessories.    When  he  vacated  the  owner 


CASE  PROBLEMS  301 

of  the  building  enjoined  him  frofti  taking  any  of  the  shelves  and  racks  which 
were  in  any  way  attached  to  the  building.  Who  is  entitled  to  the  articles  in 
question?     Explain. 

7.  Higgins  owned  some  land  which  was  mortgaged  to  Green.  He 
erected  on  this  land  a  sawmill  and  placed  therein  an  engine  which  was  built 
in  masonry,  and  put  in  other  machinery  which  was  fastened  to  the  floor,  all 
of  which  he  intended  at  the  time  to  be  permanent.  Green  foreclosed  the 
mortgage  and  obtained  the  property.  Who  was  entitled  to  the  engine  and 
machinery? 

8.  In  the  above  case,  if  the  machinery  had  been  set  on  the  floor  and 
held  there  by  its  own  weight,  who  would  have  been  entitled  to  it? 

9.  Edwards,  who  is  the  owner  of  a  house  and  lot,  is  repairing  and  paint- 
ing his  house.  While  the  painters  are  at  work  the  blinds  are  removed  for  the 
purpose  of  painting.  Before  they  are  replaced  Edwards  sells  the  house  and 
lot  to  Gray.  Are  the  blinds  a  part  of  the  realty  which  passes  to  Gray,  or  are 
they  personal  property,  and  can  Edwards  remove  them? 

10.  In  the  above  case,  do  the  chandeliers  and  gas  fixtures  which  are 
screwed  into  the  gas  pipes  pass  to  Gray  or  remain  the  property  of  Edwards? 

11.  In  the  above  case,  do  the  gas  and  water  pipes  pass  with  the  realty  to 
Gray  or  remain  the  property  of  Edwards? 

12.  Wells,  who  rents  a  house  of  Myles,  places  a  furnace  in  the  cellar  and 
connects  it  with  the  house  by  pipes  and  registers  in  the  usual  way.  It  is  not 
attached  to  the  floor.  When  Wells  moves,  Myles  refuses  to  allow  him  to  take 
the  furnace,  claiming  it  belongs  to  the  realty.     Who  gets  the  furnace? 

13.  A  large  stamping  machine  weighing  ten  tons  is  used  in  a  building  on 
Bowers's  land  which  passes  to  Coon,  the  purchaser,  under  a  mortgage  fore- 
closure. The  machine  is  not  fastened  to  the  building,  but  kept  in  place  by 
its  own  weight.     To  whom  does  it  belong.  Bowers  or  Coon? 

14.  In  the  above  case  if  Bowers  had  been  merely  a  tenant  and  had 
placed  the  stamping  machine  in  the  building  for  his  own  use  and  Coon  had 
been  the  owner  of  the  land,  could  Bowers  have  removed  the  machine  at  the 
end  of  his  tenancy,  or  would  it  have  become  the  property  of  Coon? 

15.  Lucus,  who  had  been  a  tenant  in  a  store  building  belonging  to 
Tanner,  vacated  the  building  at  the  expiration  of  his  lease  but  left  therein 
some  fixtures  to  which  he  was  entitled  under  the  terms  of  the  lease.  About 
a  month  later,  he  went  back  to  remove  the  fixtures  and  the  owner  of  the 
building  stopped  him  from  taking  them.  Had  Lucus  a  right  to  take  the  fix- 
tures?    Explain. 


PARTNERSHIP 


I.    IN  GENERAL 


The  Uniform  Partnership  Law.  —  Partnership  is  a  very  old 
form  of  business  association,  and  the  laws  of  the  different  states 
regulating  partnerships  have  not  been  uniform.  Quite  recently, 
however,  a  Uniform  Partnership  Law  has  been  adopted  by 
certain  states.  Its  adoption  is  becoming  general.  Like  other 
uniform  laws  the  Uniform  Partnership  Law  combines  the  best 
features  of  existing  laws  in  the  different  states. 

The  discussion  of  partnership  in  this  chapter  is  based  primarily 
on  the  Uniform  Partnership  Law. 

Partnership  Defined.  —  A  partnership  is  an  association  of 
two  or  more  persons  to  carry  on  as  coowners  a  business  for  profit. 
The  members  of  a  partnership  are  called  partners,  and  the 
partners  together  are  said  to  constitute  a  firm. 

Agreement.  —  A  partnership  results  from  an. agreement  under 
which  the  partners  are  carrying  on  a  business.  An  agree- 
ment to  form  a  partnership  at  some  future  time  does  not  con- 
stitute the  parties  to  such  an  agreement  partners.  A  partnership 
is  formed  simply  by  the  contract  of  the  parties  and  requires  no 
authority  from  the  government  to  create  it.  The  contract  of 
partnership  may  be  entered  upon  by  a  written  agreement,  by  an 
oral  agreement,  or  in  some  cases  by  implication. 

Written  Contract.  —  It  is  a  wise  precaution  to  have  the  agree- 
ment in  writing  and  all  of  the  terms  and  conditions  of  the  part- 
nership expressed.  The  written  agreement,  setting  forth  the 
terms  of  the  partnership  and  signed  by  the  parties  that  are  to 
compose  the  firm,  is  called  articles  of  copartnership.  A  great 
many  different  clauses  may  be  inserted,  depending  upon  the 
actual  agreement  of  the  parties.     (See  form  in  Appendix.) 

Oral  Contract.  —  As  we  have  said,  articles  of  copartnership 
are  desirable,  but  not  necessary,  to  the  formation  of  a  partnership. 
By  the  Statute  of  Frauds,  however,  a  contract  of  partnership  for 
over  one  year  must,  in  most  of  the  states,  be  in  writing. 

302 


IN  GENERAL  303 

Virginia  and  some  other  jurisdictions  hold  to  the  contrary, 
and  expressly  declare  that  a  contract  of  partnership  is  not  within 
the  Statute  of  Frauds.     . 

Implied  Partnership.  —  Aside  from  a  partnership  formed  by 
an  actual  agreement,  either  oral  or  written,  which  we  have  just 
discussed,  a  partnership  may  be  imphed  from  transactions  and 
relations  in  which  the  word  "partnership"  has  never  been  used, 
but  from  which  the  law  will  imply  a  partnership  whether  it  was 
so  intended  by  the  parties  or  not.  This  implied  partnership  may 
be  an  actual  partnership  by  implication  or  a  partnership  by 
implication  as  to  third  parties. 

Partners  by  Estoppel.  —  Estoppel  is  a  rule  of  law  which 
precludes  a  man  from  denying  the  existence  of  certain  facts  or 
conditions  which  he  has  represented  or  allowed  to  be  represented 
as  existing.  Through  this  rule  a  person  not  actually  a  partner 
may  in  some  cases  be  liable  or  may  in  some  cases  bind  others  as 
if  he  were  a  partner. 

1.  When  a  person,  by  words  spoken  or  written  or  by  conduct, 
represents  himself,  or  consents  to  another  representing  him, 
as  a  partner  in  an  existing  partnership  or  with  one  or  more 
persons  not  actual  partners,  he  is  liable  to  any  person  to  whom 
such  representation  has  been  made,  who  has,  on  the  faith 
of  such  representation,  given  credit  to  the  actual  or  apparent 
partnership. 

2.  When  a  person  has  been  thus  represented  to  be  a  partner 
in  an  existing  partnership,  or  with  one  or  more  persons  not  actual 
partners,  he  is  an  agent  of  the  persons  consenting  to  such  repre- 
sentation to  bind  them  to  the  same  extent  and  in  the  same 
manner  as  if  he  were  a  partner  in  fact,  with  respect  to  persons 
who  rely  upon  the  representation.  Where  all  the  members  of  the 
existing  partnership  consent  to  the  representation,  a  partnership 
act  or  obligation  results;  but  in  all  other  cases  it  is  the  joint  act 
or  obligation  of  the  person  acting  and  the  persons  consenting  to 
the  representation. 

Essentials  of  a  Partnership.  —  The  essentials  of  a  partnership 
may  be  given  as  follows: 

1.  The  partners  (parties  competent  to  contract). 

2.  The  agreement  or  articles  of  copartnership. 


304  PARTNERSHIP 

3.   The  firm  capital  or  property. 
,     4.   The  business  to  be  conducted  (must  be  a  lawful  business). 

5.    The  business  motive  (always  profit-sharing). 

Partners.  —  The  number  of  persons  who  may  unite  to  form  a 
partnership  is  not  limited,  but  a  person,  to  become  a  partner, 
must  be  competent  to  contract.  An  infant's  contract  of  partner- 
ship,  like  most  of  his  contracts,  is  voidable,  and  may  be  affirmed 
after  he  becomes  of  age,  in  which  case  he  has  all  of  the  rights,  and 
is  subject  to  all  of  the  duties,  of  a  partner. 

Kinds  of  Partners.  —  Partners  are  (i)  general,  (2)  secret, 
(3)  silent,  (4)  nominal,  (5)  dormant,  (6)  limited  or  special. 

General  Partner.  —  A  general  partner  is  one  of  the  active 
and  known  parties.  He  usually  participates  in  the  business  and 
is  held  out  to  the  world  as  a  partner. 

Secret  Partner.  —  A  secret  or  unknown  partner  is  one  who  is 
in  reality  a  partner  active  in  the  management  of  the  business, 
but  conceals  the  fact  both  from  the  public  and  from  the  customers 
of  the  partnership.  This  course  is  often  taken  when  a  person 
risks  money  or  credit  in  a  business,  but  does  not  wish  to  assume 
the  risks  and  liabilities  of  a  partner.  So  long  as  his  concealment 
is  perfect,  he  is  protected;  but  if  he  is  at  any  time  discovered  to 
be  a  partner,  he  may  be  held  the  same  as  a  general  partner. 

Silent  Partner.  —  A  silent  partner  is  one  who  as  between  the 
members  of  the  firm  is  an  actual  -partner,  but  who  takes  no 
active  part  in  the  business  of  the  firm  except  that  of  recovering 
his  share  of  the  profits.  He  may  be  known  to  the  outside  world 
as  a  partner,  but  in  the  business  itself  he  takes  no  active  part. 
His  liabilities  are  the  same  as  those  of  a  general  partner. 

Nominal  Partner.  —  A  nominal  partner  is  one  who  is  held 
forth  as  a  partner,  with  his  own  consent,  and  is  liable  as  a  partner 
because  he  has  given  his  credit  to  the  firm  and  authorized  engage- 
ments and  contracts  on  the  strength  of  this  relation.  He  has  no 
interest  whatever  in  the  business,  and  as  between  himself  and 
the  true  owner  there  is  no  actual  partnership,  but  there  exists 
what  we  have  spoken  of  as  an  implied  partnership  as  to  third 
parties,  and  the  nominal  partner  will  be  held  Hable  as  a  partner 
to  third  parties  to  whom  he  has  suffered  himself  to  be  held  out  as 
a  real  partner. 


IN  GENERAL  305 

Dormant  Partner.  —  A  dormant  partner  does  not  differ  mate- 
rially from  a  silent  partner,  except  that  he  is  not  known  to  the 
outside  world.  He  is  both  a  secret  and  a  silent  partner,  being 
both  unknown  as  a  partner  and  inactive  in  the  business. 

Special  Partner.  —  A  special  partner  exists  only  in  those 
states  in  which  the  statutes  provide  for  limited  partnerships.  By 
complying  with  the  statute,  such  a  partner  may  contribute  a 
certain  amount  of  capital  and  not  become  liable  for  tlie  debts  of 
the  firm  beyond  the  amount  so  contributed. 

The  Uniform  Partnership  Law  provides  how  such  a  part- 
nership may  be  formed,  the  powers  and  liabilities  of  the  general 
and  of  the  special  partners  and  how  such  partnership  is  dis- 
solved. 

Reality  of  Partnership.  —  In  the  case  of  a  partnership  by 
implication,  which  has  already  been  mentioned,  a  nice  question 
often  arises'  as  to  whether  or  not  a  partnership  really  exists. 
The  agreement  or  understanding  between  the  parties  to  a  trans- 
action may  be  such  that  the  law  will  say  they  are  partners  al- 
though they  did  not  contemplate  becoming  partners. 

If  the  parties  either  expressly  or  impliedly  enter  into  an 
association  such  as  the  law  regards  as  a  partnership,  they  will 
be  held  to  stand  in  that  relation.  Whether  such  an  association 
is  intended  to  be  formed  depends  upon  the  facts  in  each  case. 

There  may  be  a  partnership  as  to  third  parties  though  the 
parties  are  not  partners  as  between  themselves,  as  is  the  case 
where  one  holds  himself  out  as  a  partner  and  by  his  conduct 
induces  others  to  trust  the  firm  on  the  strength  of  his  being  a 
partner.  As  to  such  outside  parties,  he  will  be  so  held  although 
the  intent  and  agreement  of  the  parties  between  themselves 
do  not  create  such  a  relation. 

In  an  action  brought  against  Marbut  and  Powell,  doing  business  under 
the  firm  name  of  S.  P.  Marbut,  Powell  denied  being  a  partner.  He  con- 
tributed the  use  of  a  dwelling,  storehouse,  and  $200,  which  he  called  a  loan,* 
and  Marbut  contributed  his  time  to  the  business  and  $200.  No  agreement 
was  made  as  to  the  rent  of  the  house  or  the  interest  on  the  money,  but  Powell 
was  to  receive  one  half  of  the  profits  of  the  business  as  profits  and  not  as 
compensation  for  the  use  of  the  house  and  money.  Held,  that  this  con- 
stituted a  partnership  as  to  third  parties.  —  Powell  v.  Moore,  79  Ga.  524. 

Downey  &  Company  had  a  contract  for  paving  the  city  of  Beaumont, 
on  which  they  expected  to  make  a  profit  of  $53,000.    They  did  not  have 


3o6  PARTNERSHIP 

money  to  finance  the  work  and  Masterson  agreed  to  advance  the  money, 
under  an  agreement  by  which  Downey  &  Company  were  to  do  the  work, 
receive  payment  therefor,  settle  all  bills  for  labor,  supplies,  etc.,  and  divide 
the  net  profits  with  Masterson  on  the  basis  of  two  thirds  to  Downey  & 
Company  and  one  third  to  Masterson.  In  a  suit  for  the  price  of  materials 
furnished  for  the  work,  it  was  held  that  the  agreement  constituted  Masterson 
a  partner  in  the  firm  of  Downey  &  Company  and  he  was  personally  liable  to 
Kelley  Island  L.  &  T.  Co.  for  supplies  furnished. 

—  Kelley  Island  L.  b°  T.  Co.  v.  Masterson,  loo  Tex.  38. 

In  determining  whether  or  not  the  parties  are  partners,  the 
fact  that  they  are  to  divide  the  profits  and  to  share  the  losses 
is  evidence  of  an  intent  to  become  partners,  though  this  does 
not  absolutely  create  such  a  relation.  That  each  party  is  to  have 
a  voice  and  control  in  the  business,  and  that  each  is  to  invest 
his  capital  and  labor  in  the  undertaking  and  is  not  to  occupy 
the  position  of  clerk  or  manager,  are  generally  considered  facts 
sufficient  to  determine  the  relation  one  of  partnership. 

One  who  lends  a  sum  of  money  to  a  partnership,  under  an  agreement 
that  he  shall  be  paid  interest  thereon  and  shall  also  be  paid  one  tenth  of  the 
yearly  profits  of  the  partnership  business  if  those  profits  exceed  the  sum 
lent,  does  not  thereby  become  liable  as  a  partner  for  the  debts  of  the  firm. 

—  Meehan  v.  Valentine,  145  U.  S.  611. 
One  Dunn  had  a  contract  for  grading  a  railroad.  Dunn  and  Conner  made 
an  agreement  by  which  Dunn  furnished  six  mules  and  his  services  and  Conner 
furnished  sixteen  mules  and  harness,  the  profits  of  the  work  to  be  divided 
equally.  It  was  held  there  was  a  partnership  as  to  third  parties,  although 
Conner  had  nothing  to  do  with  the  work  and  was  not  to  be  responsible  for 
debts,  and  Conner  was  liable  as  a  partner  to  one  who  had  furnished  supplies. 

—  Brandon  b"  Dreyer  v.  Conner,  117  Ga.  759. 

Existence  of  a  Partnership.  —  The  authorities  have  differed 
very  widely  as  to  the  rules  that  will  control  in  determining  who 
are  and  who  are  not  partners,  and  the  only  safe  guide  is  to 
determine  the  intention  of  the  parties. 

Beecher  owned  a  hotel  and  Williams  agreed  in  writing  to  hire  the  use  of 
it  from  day  to  day,  to  keep  it  open  as  a  hotel,  and  to  pay  Beecher  daily  a 
sum  equal  to  one  third  of  the  gross  receipts.  Bush  sold  Williams  a  bill 
of  goods  and  then  sought  to  hold  Beecher  as  a  partner.  The  goods  were  sold 
to  Williams,  and  Beecher  was  never  held  out  as  being  in  partnership  with 
him.  Held,  that  their  agreement  did  not  constitute  a  partnership.  The 
court  said  that  there  can  be  no  such  a  thing  as  a  partnership  as  to  third 
persons  when  there  is  none  as  between  the  parties  themselves,  unless  the 
third  persons  have  been  misled  by  deceptive  appearances  or  concealment  of 
facts.  —  Beecher  v.  Bush,  45  Mich.  188. 


IN  GENERAL  307 

The  Uniform  Partnership  Law  has  laid  down  the  following 
rules  for  determining  this  question: 

1.  Except  as  provided  under  partner  by  estoppel  (page  303) 
persons  who  are  not  partners  as  to  each  other  are  not  partners 
as  to  third  persons. 

2.  Joint  tenancy,  tenancy  in  common ^  joint  property, 
common  property,  or  part  ownership  does  not  of  itself  estabUsh  a 
partnership,  whether  such  coowners  do  or  do  not  share  any  profits 
made  by  the  use  of  the  property. 

3.  The  sharing  of  gross  returns  does  not  of  itself  establish  a 
partnership,  whether  or  not  the  persons  sharing  them  have  a 
joint  or  common  right  or  interest  in  any  property  from  which 
the  returns  are  derived. 

4.  The  receipt  by  a  person  of  a  share  of  the  profits  of  a  busi- 
ness is  prima  facie  evidence  that  he  is  a  partner  in  the  business, 
but  no  such  inference  shall  be  drawn  if  such  profits  were  received 
inpayment: 

{a)  As  a  debt  by  installments  or  otherwise, 
{h)  As  wages  of  an  employee  or  rent  to  a  landlord, 
(<:)   As  an  annuity  to  a  widow  or  representative  of  a  deceased 
partner, 

(d)  As  interest  on  a  loan,  though  the  amount  of  pa>  ment  vary 
with  the  profits  of  the  business, 

(e)  As  the  consideration  for  the  sale  of  the  good  will  of  a 
business  or  other  property  by  installments  or  otherwise. 

QUESTIONS 

1.  What  is  a  partnership? 

2.  How  is  a  partnership  formed? 

3.  What  are  the  essentials  of  a  partnership? 

4.  What  are  articles  of  copartnership?  Are  they  necessary  to  the 
formation  of  a  partnership?    Explain. 

5.  How  may  a  partnership  be  formed  by  implication? 

6.  (a)  How  may  a  partnership  be  formed  by  estoppel?  {b)  Define 
estoppel. 

7.  Who  may  become  a  partner? 

8.  Name  and  define  the  different  kinds  of  partners. 

9.  How  does  a  limited  partnership  differ  from  other  partnerships? 

10.  Is  it  possible  for  a  partnership  to  exist  when  the  parties  thereto  do 
iiot  consider  themselves  partners?    Explain. 


3o8  PARTNERSHIP 

II.   What  are  the  rules  for  determining  the  existence  of  a  partnership 
under  the  Uniform  Partnership  Law? 


2.    RIGHTS  OF  PARTNERS  BETWEEN  THEMSELVES 

Right  to  Choose  Associates.  —  The  first  right  of  a  partner  is 
to  choose  those  with  whom  he  is  to  be  associated  in  this  relation, 
for  as  a  person  cannot  be  compelled  to  go  into  a  partnership 
against  his  will,  so  he  cannot  be  compelled  to  allow  any  one  to 
come  into  the  partnership  without  his  consent.  If  one  partner 
draws  out  or  dies,  his  interest  cannot  be  purchased  by  another 
who  can  come  in  without  the  consent  of  the  other  partners;  and 
if  they  give  their  consent,  and  he  comes  in,  the  result  is  that  a 
new  partnership  is  created. 

The  mere  purchase  of  interest  in  the  partnership  property  of  the  estate 
of  a  deceased  partner  does  not  create  a  new  partnership  between  the  pur- 
chaser and  the  surviving  partner  of  the  old  firm. 

—  Noonan  v.  Nunan,  76  Calif.  44. 

Right  of  Purchaser  or  Inheritor.  —  The  person  who  buys  or 
inherits  the  interest  of  a  partner  in  a  firm  merely  has  the  right 
to  demand  a  settlement  of  the  affairs  of  the  company  and  a 
payment  to  him  of  his  share,  after  the  debts  of  the  firm  are 
paid. 

Partner  may  SeU.  —  Each  partner  has  the  absolute  right  to 
sell  the  whole  or  any  part  of  the  partnership  property  included 
in  the  regular  course  of  the  business,  but  a  sale  of  any  property 
of  the  partnership  not  ordinarily  kept  for  sale  and  not  within 
the  course  of  the  business  is  not  within  the  power  of  one  partner. 
For  example,  one  partner  in  a  grocery  business  can  sell  the  stock 
in  the  regular  way,  but  not  the  fixtures  and  store,  as  such  sale 
would  not  be  in  the  regular  course  of  the  business. 

Drake  and  Thyng  were  partners  in  the  brickmaking  business.  While 
Drake  was  away  Thyng  sold  the  stock  and  plant  to  a  third  party  for  an 
insignificant  and  inadequate  sum.  Drake  brought  action  to  set  aside 
the  sale.  Held,  that,  while  a  partner  may  sell  a  part  or  the  whole  of  any  of 
the  effects  of  a  firm  which  are  intended  for  sale,  if  the  sale  is  within  the  scope 
of  the  partnership  business,  yet  he  cannot,  without  the  consent  of  the  other 
partners,  dispose  of  the  partnership  business  itself  or  of  all  the  effects,  includ- 
ing the  means  of  carrying  it  on,  as  this  is  beyond  the  range  of  a  partner's 
implied  powers.  —  Drake  v.  Thyng,  37  Ark.  228. 


RIGHTS  OF  PARTNERS  309 

Partnership  Property. —  i.  All  property  originally  brought 
into  the  partnership  stock  or  subsequently  acquired,  by  purchase 
or  otherwise,  on  account  of  the  partnership  is  partnership 
property. 

2.  Unless  the  contrary  intention  appears,  property  acquired 
with  partnership  funds  is  partnership  property. 

3.  Any  estate  in  real  property  may  be  acquired  in  the 
partnership  name.  Title  so  acquired  can  be  conveyed  only  in  the 
partnership  name. 

Capital.  —  The  capital  of  the  partnership  consists  of  such 

properties  or  amounts  as  are  contributed  to  the  common  fund 

by  the  different  partners  at  the  beginning,  or  that  may  be  put 

in  thereafter.     The  claim  of  each  partner  to  this  partnership 

capital  does  not  extend  to  any  particular  article,  but  is  an  interest 

in  the  whole,  consisting  of  a  right  to  share  in  the  proceeds  after 

the  firm  debts  are  paid.    The  partners  are  owners  "in  common" 

(page  9)  of  all  property  belonging  to  the  firm.    Aside  from  this, 

individual  property  of  the  partners  may  be  used  in  the  business. 

The  store  in  which  the  business  is  conducted  may  belong  to  one 

of  the  partners,  and  he  can  deal  with  this  as  his  own  and  not  as  a 

partner. 

One  partner  mortgaged  a  certain  number  of  bales  of  cotton  out  of  the 
partnership  crop  for  the  payment  of  an  individual  debt.  The  mortgagee  had 
notice  of  the  partnership.  Held,  that  the  mortgagee  had  no  right  to  the 
specific  property  but  only  a  right  to  the  ultimate  interest  of  the  mortgagor  in 
the  partnership  effects,  after  all  of  the  firm  debts  were  paid,  to  an  amount 
equal  to  the  value  of  the  cotton.  —  Nichol  v.  Stewart,  36  Ark.  612. 

Good  Will.  —  The  good  will  of  the  firm  is  partnership  prop- 
erty. The  good  will  is  defined  to  be  the  benefit  arising  from  the 
connection  and  reputation  of  the  firm,  the  fact  that  the  business 
is  established  and  going,  that  it  has  customers  and  is  advertised 
throughout  the  section  to  which  it  looks  for  trade.  The  sale  of 
the  business  as  a  whole,  including  stock,  fixtures,  etc.,  is  under- 
stood to  include  the  good  will.  So  the  trade-marks  and  trade 
name  of  a  business  are  property  belonging  to  the  firm  and  pass 
with  the  sale  of  the  business  in  the  same  manner  as  the  good 
will,  although  either  may  be  sold  separately. 

Hoopes  and  Merry  were  copartners  engaged  in  manufacturing  galvanized 
iron  under  two  trade-marks,  one  the  "Lion  brand"  and  the  other  the 


310  PARTNERSHIP 

"Phoenix  brand."  Upon  the  dissolution  of  the  firm  Hoopes  bought  the 
business.  Thereafter  Merry  brought  action  to  restrain  him  from  the  use  of 
the  above-named  trade-marks,  nothing  having  been  said  about  them  in  the 
bill  of  sale.  Held,  that  the  exclusive  right  to  use  the  trade-marks  belonging 
to  the  firm  passed  to  the  defendant.  —  Merry  v.  Hoopes,  iii  N.  Y.  415. 

Good  Faith.  —  The  first  duty  of  each  of  the  partners  to  the 
others  is  that  of  exercising  the  utmost  good  faith  toward  them. 
The  reason  for  this  is  apparent  when  we  realize  how  completely 
each  partner  is  at  the  mercy  of  the  others.  Each  partner  really 
acts  as  agent  in  the  transaction  of  the  business  for  the  firm  and 
for  the  other  partners. 

If  one  partner  is  the  active  agent  of  the  firm,  and  as  such  receives  a  salary 
beyond  what  comes  to  him  from  his  interest  as  a  partner,  he  is  clothed  with 
a  double  trust  in  his  relations  with  the  other  partners,  which  imposes  upon 
him  the  duty  of  exercising  the  utmost  good  faith  in  his  dealings;  and  if  he 
obtains  anything  for  his  own  benefit  in  disregard  of  that  trust,  a  court  of 
equity  will  compel  him  to  account  to  the  other  partners  for  it. 

—  Kimherly  v.  Arms,  129  U.  S.  512. 

Individual  Liability.  —  Each  partner  is  chargeable  with  any 
loss  to  the  firm  which  arises  from  his  own  breach  of  duty,  whether 
through  fraud,  negligence,  or  ignorance,  but  he  is  not  Hable  to 
the  firm  for  loss  arising  from  an  honest  mistake  of  judgment. 

Although  a  partner  may  act  unwisely  in  incurring  liabilities  for  the  firm^ 
the  resulting  loss  cannot  properly  be  charged  to  him  personally  upon  a 
dissolution,  when  it  is  not  shown  that  his  acts  were  wanton  or  fraudulent. 

—  Charlton  v.  Sloan,  76  Iowa  288. 

If  one  partner  takes  a  secret  advantage  of  the  partnership, 
whereby  he  makes  a  profit  for  himself  at  the  expense  of  the 
firm,  he  can  be  required  to  restore  it,  the  courts  holding  that  he 
acted  for  the  partnership  and  it  will  be  entitled  to  the  benefits. 
If  the  lease  of  a  building  occupied  by  a  firm  expires,  one  member 
cannot  secretly  take  out  a  new  lease  in  his  own  name  and  seek 
to  sublet  to  the  firm  at  an  increased  rate.  The  new  lease  taken 
in  the  name  of  one  member  of  the  firm  will  be  declared  by  the 
courts  as  held  by  him  for  the  benefit  and  use  of  the  firm. 

Hodge  and  Holden  are  partners  engaged  in  the  lumber  business.  Holden, 
while  away  on  his  vacation,  purchased  a  quantity  of  select  lumber  on  his 
own  account.  When  he  returned,  he  sold  the  lumber  he  had  purchased  to 
his  firm  at  an  advance  in  price  and  took  the  profit  for  himself.  Hodge  can 
require  Holden  to  account  to  the  firm  for  all  profit  resulting  from  this  trans- 
action. 


RIGHTS  OF  PARTNERS  311 

Records  of  Transaction.  —  The  firm  must  keep  books  of 
account  upon  which  each  member  is  bound  to  enter,  or  have 
entered,  all  of  his  transactions  for  the  firm,  as  each  partner  has  a 
right  to  know  of  all  the  transactions  in  the  business. 

A  member  of  a  firm  whose  duty  it  is  to  keep  the  accounts,  and  who 
claims  that  he  has  omitted  to  enter  credits  to  which  he  is  entitled,  will  be 
required  to  furnish  satisfactory  proof  of  the  mistake  he  asks  to  have  cor- 
rected. —  Van  Ness  v.  Van  Ness,  32  N.  J.  Equity  669. 

Compensation.  —  One  partner  is  not  entitled  to  any  special 
compensation  for  his  services  in  the  partnership  unless  it  is 
expressly  provided  for.  Each  partner  is  supposed  to  do  all  that 
he  can  for  the  good  of  the  partnership,  and  whatever  he  does 
gives  him  no  claim  for  extra  compensatior  beyond  his  share  of 
the  profits  of  the  business  unless  he  has  the  consent  of  the  other 
partners. 

In  the  absence  of  an  agreement  to  that  effect,  one  partner  is  not  entitled 
to  charge  his  copartners  for  hfs  services  because  he  has  done  more  than  his 
just  proportion  of  the  work.  —  Burgess  v.  Badger,  124  111.  288. 

The  claim  of  the  surviving  partner  of  a  firm  for  compensation  for  his 
services  in  closing  up  the  partnership  business  was  not  allowed.  The  court 
held  that  a  surviving  partner  is  not  entitled  to  any  compensation  for  such 
services.  —  Gregory  v.  Menefee,  83  Mo.  413. 

The  sickness  of  a  partner  is  one  of  the  risks  incident  to  a  partnership,  and 
does  not  give  another  partner  any  claim  for  personal  services  in  conducting 
the  entire  business  unless  the  articles  of  copartnership  provide  for  such  com- 
pensation. —  Heath  v.  Waters,  40  Mich.  457. 

Partners  may  Sign  Negotiable  Paper.  —  It  is  the  general  rule 
that  one  member  can  bind  the  firm  by  signing  the  firm  name 
as  maker,  indorser,  or  acceptor  of  negotiable  paper  if  it  is  done 
in  connection  with  the  firm  business  and  not  for  a  private  debt 
or  account. 

The  Simmons  brothers  were  partners  in  the  business  of  buying  and 
selling  cattle  and  produce.  The  court  held  that  each  member  had  the  right 
to  draw,  accept,  or  indorse  bills  of  exchange  in  the  firm  name,  and  bind  the 
partnership  as  to  third  persons,  dealing  fairly  and  in  "good  faith,  regarding 
matters  usually  incident  to  the  business.  It  is  immaterial  in  such  a  case,  as 
to  persons  thus  dealing  with  one  of  the  partners,  that  the  other  partner  was 
not  informed  of  the  transaction  and  repudiated  it  as  soon  as  it  came  to  his 
knowledge.  —  Wagner  v.  Simmons,  61  Ala.  143. 

The  power  of  any  partner  to  use  the  firm  name  on  negotiable 
paper  is  presumed,  and  a  stipulation  between  the  partners  that 


312  PARTNERSHIP 

certain  members  of  the  firm  shall  not  so  use  it  will  not  affect 
third  persons  having  no  knowledge  of  such  agreement.  But  this 
rule  does  not  apply  if  it  is  obvious  that  the  instrument  is  signed, 
not  for  the  firm,  but  for  the  individual  benefit  of  a  partner. 

Power  of  Majority.  —  We  have  discussed  the  power  of  one 
partner,  and  turning  now  to  the  question  of  what  a  majority  of 
the  partners  can  do,  we  find  that  they  may  control  the  ordinary 
conduct  of  the  firm's  business,  and  have  power  to  act  in  all 
matters  within  the  scope  of  the  partnership  affairs,  but  they  have 
no  power  to  change  the  nature  of  the  business,  the  location  of 
the  business,  or  the  firm  name. 

Five  persons  had  agreed  to  cut  and  pack  a  quantity  of  ice  for  sale,  and 
after  deducting  all  expenses  to  divide  the  proceeds  equally.  One  of  the 
members,  with  the  consent  and  approval  of  two  others,  sold  a  large  quantity 
of  the  ice.  The  remaining  two  brought  suit  to  charge  the  others  for  damages 
in  seUing  the  ice  at  what  they  claimed  was  too  low  a  price.  Held,  that  the 
agreement  constituted  a  partnership,  and  if  there  be  no  fraud  the  majority 
of  a  firm  can  make  a  valid  sale  of  property  belonging  to  the  firm  without  the 
consent  of  the  minority.  —  Staples  v.  Spragne,  75  Maine  458. 

Moore,  Miller,  and  Manning  are  partners  in  the  hardware  business. 
Moore  and  Miller  favor  putting  in  a  stock  of  groceries  and  provisions.  Man- 
ning is  opposed.  As  this  would  mean  a  change  in  the  nature  of  the  business, 
it  will  be  necessary  for  all  the  partners  to  consent,  and  unless  they  do  con- 
sent, the  power  of  any  two  partners  to  act  in  this  instance  is  denied. 

QUESTIONS 

1.  What  rights  has  a  partner  as  to  the  choice  of  associates? 

2 .  Does  the  purchaser  of  a  retiring  partner's  interest  become  a  partner? 
Explain. 

3.  How  does  a  change  of  partners  affect  the  partnership? 

4.  What  are  the  rights  of  a  purchaser  or  inheritor  of  a  partner's  share? 

5.  Has  one  partner  a  right  to  sell  partnership  property?    Explain. 

6.  Of  what  may  the  capital  of  a  partnership  consist? 

7.  What  is  the  good  will  of  a  business? 

8.  What  is  the  first  duty  of  each  partner? 

9.  What  is  the  extent  of  the  individual  partner's  liability  for  loss? 

10.  What  is  the  liability  of  a  partner  who  takes  secret  advantage  of 
his  firm? 

1 1 .  What  are  the  requirements  with  reference  to  records  of  transactions? 

12.  Has  one  partner  a  right  to  claim  extra  compensation  for  services 
to  the  partnership?    Explain. 

13.  What  is  the  rule  as  to  one  member  of  a  firm  signing  negotiable  paper? 

14.  What  power  has  a  majority  of  the  partners? 

15.  What  restrictions  are  imposed  on  the  power  of  the  majority? 


LIABILITY  OF  PARTNERS  313 


3.   LIABILITY  OF  PARTNERS  TO  THIRD  PARTIES 

Liability  of  Partners.  —  Each  partner  is  liable  for  all  of  the 

debts  of  the  partnership,  and  this  is  so  whether  he  is  a  secret, 

nominal,  or  general  partner. 

Farmer  and  Jopes  had  been  doing  business  under  the  name  of  W.  H. 
Jopes.  It  was  shown  that  Farmer  was  a  dormant  or  secret  partner.  Held, 
that  while  the  credit  was  given  to  a  general  partner,  because  no  other  was 
known  to  the  creditor,  yet  the  creditor  may  also  sue  the  secret  partner  when 
discovered,  and  the  credit  will  not  be  presumed  to  have  been  given  on  the  sole 
responsibiUty  of  the  general  partner.  —  Richardson  v.  Farmer ,  36  Mo.  35. 

Effect  of  Notice. — But  neither  the  firm  nor  individual  partners 
will  be  liable  for  any  particular  acts  of  a  partner  if  fair  notice 
that  such  acts  are  forbidden  is  given  to  the  person  with  whom 
the  partner  deals,  prior  to  the  transaction  in  question. 

The  partnership  relation  makes  each  partner  the  agent  of  the  other  when 
acting  within  the  scope  of  his  power,  but  when  the  agency  is  denied  and  the 
act  forbidden  by  the  copartner,  with  notice  to  the  party  assuming  to  deal 
with  him  as  agent  of  the  firm,  the  act  is  then  his  individual  act,  and  not  that 
of  the  firm.  —  Y eager  v.  Wallace,  57  Pa.  State  365. 

Limit  of  Authority.  —  The  authority  of  a  partner  to  bind  the 
firm  by  contract  is  limited  to  transactions  within  the  scope  of 
the  partnership  business,  and  if  he  seeks  to  charge  the  firm 
with  matters  outside  of  the  scope  of  the  firm's  usual  business, 
he  must  show  special  authority  from  the  other  partners  so  to  do. 
A  partnership  to  work  a  farm  would  not  therefore  give  one 
partner  any  implied  authority  to  draw  bills  of  exchange  or 
borrow  money,  while  a  partner  in  a  mercantile  or  manufacturing 
company  would  have  such  authority. 

.  Harris  and  Drake  were  partners  in  the  hay  and  grain  business.  Harris, 
without  the  knowledge  or  consent  of  Drake,  purchased  a  building  lot,  in  the 
name  of  the  firm,  which  he  contended  they  needed  to  increase  their  facilities. 
Harris  had  no  authority  to  purchase  this  lot  and  Drake  is  not  bound  by  this 
transaction  which  he  did  not  authorize  and  was  not  a  party  to. 

While  the  presumption  is  that  a  partner  has  no  authority  to 
use  the  goods  or  credit  of  the  firm  to  pay  his  personal  debts  nor 
to  buy  goods  for  his  personal  use  with  the  partnership  funds, 
still  he  may  have  express  authority  so  to  do,  and  in  that  case  the 
transaction  is  valid. 


314  PARTNERSHIP 

A  partner  indorsed  a  firm  check  in  payment  of  his  individual  indebted- 
ness without  the  knowledge,  consent,  or  approval  of  his  partner.  It  was  held 
that  such  an  arrangement  was  a  fraud  on  the  partnership  and  the  creditor 
could  not  hold  the  check  as  he  was  not  a  bona  fide  holder  under  the  circum- 
stances.—  Nichols  &  Co.  V.  Thomas,  51  Okla.  212. 

Name.  —  A  partnership  should  adopt  some  particular  name 
under  which  to  do  business.  This  may  be  simply  the  name  or 
names  of  one  or  more  of  the  partners,  either  with  or  without  the 
words  "and  company"  added,  or  any  other  designation  that  the 
parties  may  adopt,  but  by  statute  in  some  states  the  term 
''and  company"  must  not  be  used  unless  it  actually  represents 
a  partner. 

Fraud.  —  The  partners  are  held  liable  for  the  fraud  and  the 
false  representations  of  one  partner  when  they  are  made  in  the 
course  of  the  firm  business. 

One  partner  is  not  liable  for  the  wrongful  acts  of  another  partner  unless 
they  were  done  within  the  proper  scope  of  the  business  of  the  partnership, 
or  were  authorized  or  adopted  by  him.  —  Taylor  v.  Jones,  42  N.  H.  25. 

Notice  to  One  Partner  is  Notice  to  All.  —  It  is  a  well- 
established  principle  that  notice  to  one  partner  in  the  course  of 
the  business  is  notice  to  all.  An  illustration  of  this  is  the  case  of 
partnership  negotiable  paper  that  has  been  dishonored,  notice 
of  which  dishonor  to  one  partner  is  notice  to  the  firm. 

Where  timber  is  purchased  by  a  firm,  prior  notice  to  one  member  of  the 
firm  that  it  was  cut  from  land  not  belonging  to  the  vendor  is  notice  to  all  of 
the  partners.  —  Tucker  v.  Cole,  54  Wis.  539. 

Where  a  partnership  seeks  to  recover  as  a  bona  fide  purchaser  of  a  promis- 
sory note,  fraudulently  procured,  the  burden  is  upon  it  to  show  that  all  of 
the  members  of  the  partnership  were  ignorant  of  the  fraud  at  the  time  of  the 
purchase.  —  Frank  v.  Blake,  58  Iowa  750. 

QUESTIONS 

T.  Is  a  secret  or  dormant  partner  liable  to  third  parties?    Explain. 

2.  What  is  the  effect  of  notice  that  the  firm  will  not  be  liable  for  the 
acts  of  any  particular  partner? 

3.  What  is  a  partner's  limit  of  authority  to  bind  the  firm  by  a  contract? 

4.  Have  the  partners  a  right  to  select  a  name  under  which  to  do  busi- 
ness? Explain. 

5.  Is  the  firm  liable  for  fraud  practiced  by  one  partner?    Explain. 

6.  Explain  the  following:  "Notice  to  one  partner  is  notice  to  all." 


REMEDIES  AGAINST  THE  PARTNERSHIP  315 

4.    REMEDIES  AGAINST  THE  PARTNERSHIP 

In  the  eyes  of  the  law  a  partnership  does  not  have  an  individ- 
uality of  its  own  like  a  corporation,  but  it  is  looked  upon  as  a 
collection  of  persons  and  must  be  sued  not  in  the  firm  name  but 
in  the  names  of  the  persons  composing  it.  In  some  of  the  states 
this  rule  has  been  changed,  and  partnerships  may  sue  and  be 
sued  in  the  firm  name.  The  members  of  a  partnership  are 
proceeded  against  for  a  debt  of  the  firm  in  the  same  way  that 
one  proceeds  against  an  individual.  When  the  creditors  of  the 
partnership  and  the  individual  creditors  of  the  partners  come  in 
conflict,  a  distinction  is  made  and  the  law  says  they  must  proceed 
in  a  particular  way,  the  object  being  to  give  the  individual 
creditor  his  due  out  of  the  individual  property  of  the  partner, 
and  the  firm  creditor  his  due  out  of  the  partnership  property. 
If,  after  the  partnership  debts  are  paid,  there  remains  a  surplus, 
the  individual  creditors  of  a  partner  may  proceed  against  this 
partner's  share;  but  if,  on  the  other  hand^  there  are  not  sufficient 
partnership  assets  to  satisfy  the  firm  creditors,  but  there  remain 
individual  assets  after  the  individual  creditors  are  satisfied,  such 
surplus  is  Hable  for  the  firm  debts. 

In  case  there  are  no  partnership  assets,  the  firm  creditors  are 
entitled  to  share  in  the  individual  assets  of  any  partner  equally 
with  his  individual  creditors. 

QUESTIONS 

1.  May  suit  be  brought  against  a  partnership  in  the  name  of  the  firm? 
Explain. 

2.  What  are  the  rules  as  to  the  respective  rights  of  firm  creditors  and 
individual  creditors? 

3.  When  may  a  partner's  individual  property  be  taken  to  pay  firm 
debts? 

5.    DISSOLUTION 

Duration.  —  When  the  partnership  is  formed,  the  articles  of 
copartnership  usually  state  how  long  it  shall  continue.  Other 
circumstances,  however,  may  operate  to  change  the  time,  and 
when  the  relation  terminates,  the  partnership  is  said  to  be 
dissolved. 


3i6  PARTNERSHIP 

Forms  of  Dissolution.  —  Dissolution  may  take  place  in  any 
one  of  the  following  ways : 

1.  By  provision  in  the  articles  of  copartnership. 

2.  By  the  mutual  consent  of  all  the  partners. 

3.  By  the  act  of  one  or  more  of  the  partners. 

4.  By  a  change  in  the  partnership. 

5.  By  the  death  of  a  partner. 

6.  By.  the  decree  of  a  court  of  equity. 

7.  By  bankruptcy. 

1.  Contract.  —  When  the  period  for  which  the  partnership 
was  formed  has  elapsed,  it  is  thereupon  dissolved  unless  continued 
by  the  parties.  The  partnership  may  be  formed  for  a  temporary 
purpose,  and  in  that  case  when  the  purpose  is  accomplished  the 
partnership  ceases. 

2.  Mutual  Consent.  —  The  partnership  may  be  dissolved  at 
any  time  by  the  mutual  assent  of  all  the  partners,  though  the 
period  for  which  it  was  formed  has  not  elapsed. 

3.  Act  of  a  Partner.  —  The  firm  may  be  dissolved  by  the  act 
of  one  or  more  of  the  parties.  This  is  accomplished  when  one 
partner  makes  an  assignment  for  the  benefit  of  his  creditors  or 
becomes  bankrupt  or,  being  insolvent,  his  interest  is  sold  upon 
execution  to  pay  his  creditors.  In  these  cases  his  property  passes 
beyond  his  control  and  he  can  no  longer  perform  his  part  as  a 
partner.  Also,  where  the  partnership  was  formed  for  no  definite 
period,  but  at  the  will  of  the  parties,  any  partner  can  terminate 
the  relation  by  notice  to  the  other  parties. 

Blake,  Huston,  and  Sweeting  were  engaged  as  partners  in  manufacturing 
brick.  After  continuing  in  the  business  about  three  years  Huston  went 
away,  abandoned  the  business,  and  wrote  to  Blake,  authorizing  him  and 
Sweeting  to  settle  the  business  as  they  pleased.  Thereafter  Blake  and  Sweet- 
ing formed  a  new  partnership  and  conducted  the  business  themselves.  Held, 
that  the  acts  of  Huston  operated  as  a  dissolution  of  the  old  firm.  A  partner- 
ship, when  not  formed  for  any  definite  time,  may  be  dissolved  by  any  mem- 
ber of  the  firm  at  his  pleasure.  The  withdrawal  of  one  member  is  a  dissolu- 
tion of  the  firm.  —  Blake  v.  Sweeting,  121  111.  67. 

4.  Change  in  the  Partnership.  —  The  partnership  may  be  dis- 
solved by  a  change  in  the  membership  of  the  firm.  A  partner 
may  withdraw  from  the  firm,  or  he  may  transfer  his  interest  to 
a  stranger.    In  whatever  way  the  members  of  a  partnership 


DISSOLUTION  317 

may  be  changed,  the  act  at  once  terminates  and  dissolves  the 

partnership.    One  partner  may  sell  his  interest  to  another  party 

who  is  satisfactory  to  the  remaining  members  of  the  firm,  and 

they  may  agree  to  take  him  in  as  a  partner.    In  this  case  the 

old  partnership  is  dissolved  and  a  new  one  formed.    After  the 

partner  has  retired  or  sold  out  he  is  still  liable  upon  all  of  the 

uncompleted  contracts  of  the  firm  made  before  the  dissolution  of 

the  partnership. 

A  retiring  partner  is  bound  by  all  previous  contracts  made  within  the 
lines  of  the  business,  but  after  the  dissolution  of  the  partnership  he  is  not 
bound  by  any  new  contracts  made  by  his  former  partner. 

—  Goodspeed  v.  Wiard  Plow  Co.,  45  Mich.  322. 

.5.  Death  of  a  Partner.  —  Another  change  which  will  work  a 
dissolution  of  the  partnership  is  the  death  of  a  partner.  This  is 
really  a  subdivision  of  the  preceding  class,  as  it  is  a  change  in  the 
'partnership.  The  dissolution  of  the  partnership  follows  neces- 
sarily immediately  after  a  partner's  death.  The  surviving  part- 
ners have  the  exclusive  right  to  the  possession  and  management 
of  the  partnership  business  for  the  purpose  of  closing  it  out. 
Frequently  the  articles  of  copartnership  provide  how  the  sur- 
viving partner  shall  close  out  the  business,  and  when  such  pro- 
vision is  made  it  must  be  followed.  The  surviving  partner 
holds  the  partnership  assets  in  trust  for  the  purpose  of  closing 
up  its  affairs,  paying  the  firm  debts,  and  distributing  the  remain- 
ing assets  among  the  partners  or  their  representatives. 

Upon  the  death  of  a  partner  the  title  to  the  personal  assets  of  the  firm  is 
in  the  survivor,  who  is  charged  with  the  administration  of  the  same,  first  for 
the  payment  of  the  partnership  debts  and  second  for  paying  over  the 
deceased  partner's  share  in  the  surplus  to  his  legal  representatives.  Unless 
there  is  a  surplus  none  of  the  assets  constitute  any  part  of  the  estate  of  the 
deceased.  —  Sellers  v.  Shore,  89  Ga.  416. 

6.  Decree  of  a  Court.  —  A  court  of  equity  may  decree  a  dis- 
solution of  the  firm  for  good  cause  upon  the  application  of  one 
or  more  of  the  partners.  This  relief  will  be  granted  when  the 
partnership  was  entered  into  through  fraud  or  for  a  wrongful 
and  illegal  purpose.  After  the  partnership  is  formed  a  dissolu- 
tion may  be  decreed  because  of  the  misconduct  of  one  or  more 
of  the  partners,  but  this  relief  will  not  be  granted  for  any  slight 
cause.    Wild  speculations,  gross  extravagance,  quarrelsome  and 


3i8  PARTNERSHIP 

oppressive  conduct,  habitual  intemperance,  indolence  and  inat- 
tention to  business,  or  any  conduct  which  brings  disgrace  and 
discredit  upon  the  firm,  if  sufficiently  serious,  will  constitute 
ground  justifying  such  action  by  the  court. 

When  one  partner  having  the  management  of  the  partnership  affairs 
makes  false  entries  in  the  books  and  defrauds  his  copartners  of  a  portion  of 
the  partnership  receipts,  the  partners  thus  defrauded  are  entitled  to  a 
dissolution  of  the  partnership  and  an  accounting. 

—  Cottle  V.  Leitch,  35  Calif.  434. 

Ill  feeling  and  differences  between  partners  will  not  justify  the  appoint- 
ing of  a  receiver  to  wind  up  the  affairs  of  the  concern,  when  the  term  for 
which  the  partnership  was  created  has  not  expired  and  it  does  not  clearly 
appear  that  the  parties  would  suffer  loss  by  continuing  in  possession  of  the 
property.  —  Loomis  v.  McKenzie,  31  Iowa  425. 

The  denial  by  one  partner  of  all  rights  of  his  copartners  in  the  partner- 
ship property  and  his  claim  of  the  right  of  exclusive  possession  and  use  of  it, 
entitle  his  copartners  to  a  dissolution  of  the  partnership. 

—  Groth  V.  Paymentj  79  Mich.  290. 

The  rule  seems  to  be,  if  it  is  obvious  that  the  parties  cannot 
longer  be  associated  together  with  harmony  and  profit,  the  court 
will  decree  a  dissolution  rather  than  cause  the  partnership  to  be 
injurious  to  the  innocent  party.  So  also  the  financial  inability 
of  one  partner  to  fulfill  his  part  of  the  transactions  of  the  firm, 
whether  from  his  fault  or  his  misfortune,  will  be  a  sufficient 
cause  for  dissolution.  Insanity  or  permanent  failure  of  health 
because  of  incurable  disease  is  sufficient  ground  for  dissolution. 

The  insanity  of  a  partner  does  not  in  itself  work  a  dissolution  of  the 
partnership,  but  may  constitute  sufficient  ground  to  justify  a  court  of 
equity  in  decreeing  its  dissolution.  —  Raymond  v.  Vaughn,  128  111.  256. 

7.  Bankruptcy.  —  Bankruptcy  of  either  a  partner  or  the  firm 
operates  as  a  dissolution  of  the  partnership.  This  is  also  true 
when  the  firm  or  any  partner  makes  an  assignment  for  the  benefit 
of  creditors. 

Notice.  —  The  retiring  partner,  if  the  business  is  to  be  con- 
tinued by  a  new  firm,  which  may  have  the  same  or  a  somewhat 
similar  name,  will  be  liable  for  the  debts  and  contracts  of  the 
firm  even  after  he  is  out,  if  they  were  entered  into  with  parties 
who  had  dealt  with  the  firm  while  he  was  a  member  and  had  no 
notice  of  his  retirement.  Therefore,  to  render  him  free  from 
liabihty  for  the  debts  and  contracts  of  the  new  firm,  he  must 


DISSOLUTION  319 

give  notice  of  the  dissolution  of  the  old  firm.  This  notice  must 
be  given  either  orally  or  in  writing  to  those  who  have  had  previous 
dealing  with  the  old  firm,  for  the  retiring  partner  is  bound 
unless  those  who  have  dealt  with  the  old  firm  can  be  shown  to 
have  had  actual  notice. 

Stevens  and  one  Boyd  formed  a  partnership  and  dealt  regularly  and 
continuously  with  Scheiffelin.  The  partnership  was  dissolved  and  notice  of 
the  dissolution  was  published  in  the  newspapers,  but  no  actual  notice  was 
sent  to  Scheiffelin.  Thereafter  Boyd  received  further  goods  from  Scheiffehn 
on  the  credit  of  the  firm.  It  was  held  that  Scheiffelin,  having  dealt  regularly 
with  the  firm,  was  entitled  to  actual  notice  of  the  dissolution,  and,  in  the 
absence  of  such  notice,  Stevens  was  liable  for  the  value  of  the  goods  delivered 
to  Boyd  after  the  dissolution.  —  Scheiffelin  v.  Stevens,  60  N.  C.  106. 

But  direct  notice  from  the  firm  or  the  retiring  partner  is  not 
required  if  the  customer  has  actual  knowledge  of  the  withdrawal 
of  the  partner. 

Aside  from  notice  to  former  customers,  notice  to  the  world  is 
necessary  to  enable  the  retiring  partner  to  escape  liability  for 
future  debts  of  the  continuing  firm  or  partner.  The  ordinary 
method  of  giving  such  notice  by  publication  in  a  newspaper  is 
usually  held  sufficient,  but  the  paper  must  be  one  which  circulates 
in  the  vicinity. 

•As  £0  persons  who  have  never  had  any  business  transactions  with  a 
partnership,  notice  of  its  dissolution  or  the  withdrawal  of  a  member  by 
publication  in  a  newspaper  published  at  the  place  of  business  of  the  firm  is 
sufficient,  but  as  to  those  who  have  had  previous  dealings  with  the  firm  actual 
notice  or  its  equivalent  must  be  shown  to  protect  the  retiring  member  from 
liability  for  debts  subsequently  incurred  in  the  firm  name. 

—  Meyer  v.  Krokn,  114  111.  574. 

A  change  in  the  name  of  the  firm  by  which  the  name  of  the . 
retiring  partner  is  dropped  and  general  attention  is  called  to  the 
fact  that  the  firm  has  dissolved,  is  sometimes  held  to  be  sufficient 
notice  to  the  general  public  to  protect  the  retiring  partner  against 
future  dealings  of  the  new  firm. 

A  change  of  a  partnership  name  which  in  itself  indicates  who  the  indi- 
vidual partners  are,  may  be  sufficient  evidence  of  a  dissolution  of  such  part- 
nership; but  when  the  name  under  which  the  business  is  transacted  gives  no 
indication  of  the  names  of  the  persons  composing  the  firm,  a  change  in  such 
name  is  not  notice  of  the  retirement  of  a  person  who  was  previously  known  to 
have  been  a  partner  in  the  business.  —  CoggsweU  v.  Davis,  65  Wis.  191. 


320  PARTNERSHIP 

Liability  of  Incoming  Partner.  —  Under  the  Uniform  Part- 
nership Law,  a  person  admitted  as  a  partner  into  an  existing 
partnership  is  Hable  for  all  the  obligations  of  the  partnership 
arising  before  his  admission  as  though  he  had  been  a  partner 
when  such  obligations  were  incurred,  except  that  his  liability 
shall  be  satisfied  only  out  of  partnership  property.  The  new  or 
incoming  partner  is  liable  for  all  of  the  debts  incurred  after  he 
came  into  the  firm. 

Discontinuing  the  Business.  —  When  a  partnership  business 
has  been  discontinued  for  any  reason  it  becomes  necessary  to 
wind  up  the  business.  This  is  done  by  fulfilling  or  disposing  of  all 
existing  contracts,  collecting  all  outstanding  accounts,  converting 
all  assets,  so  far  as  possible,  into  cash,  settling  all  claims  against 
the  firm,  and  making  a  distribution  of  profits  or  losses  among  the 
partners.  When  this  has  been  done,  each  partner's  investment  or 
such  portion  of  it  as  remains  is  returned  to  him,  and  the  business  is 
declared  closed. 

The  partners  who  take  charge  of  winding  up  the  business 
should  notify  all  people  who  have  dealt  with  the  firm  of  its 
dissolution  and  of  the  fact  they  are  engaged  in  winding  up  the 
business. 

QUESTIONS 

1.  In  what  seven  ways  may  a  partnership  be  dissolved?  • 

2.  How  will  acts  of  a  partner  effect  a  dissolution?    Explain. 

3.  What  changes  in  a  partnership  will  effect  a  dissolution? 

4.  How  does  the  death  of  a  partner  affect  the  partnership? 

5.  For  what  causes  will  a  court  decree  a  dissolution  of  a  partnership? 

6.  How  does  bankruptcy  of  a  partner  or  the  firm  affect  the  partnership? 

7.  Why  is  notice  of  a  change  in  the  partnership  necessary? 

8.  How  and  to  whom  should  notice  be  given? 

9.  What  is  the  liabiHty  of  an  incoming  partner? 

10.   What  is  the  course  of  procedure  in  winding  up  partnership  business? 

IMPORTANT  POINTS 

A  partnership  may  be  formed  by  a  simple  contract,  either  oral  or 
written,  express  or  implied. 

An  association  of  persons  who  do  not  share  in  the  profits  of  the 
business  is  not  a  partnership. 

Each  partner  is  a  general  agent  of  his  firm  for  the  transaction  of 
any  business  within  the  scope  of  the  partnerhip  purposes. 

Sharing  of  the  profits  implies  sharing  the  losses. 


IMPORTANT  POINTS  321 

In  case  of  insolvency  each  partner  is  personally  liable  for  all  of  the 
firm's  obligations. 

The  firm  property  includes  the  business,  firm  name,  good  will, 
trade-marks,  and  all  other  intangible  possessions. 

Any  partner  may  call  for  an  accounting  at  any  time  to  ascertain 
his  interest  in  the  business. 

The  partnership  is  a  personal  relation  which  may  be  terminated 
at  will  for  a  cause. 

A  partnership,  in  most  of  the  states,  cannot  sue  or  be  sued  in  the  firm 
name. 

A  partnership  cannot  contract  with  nor  bring  suit  against  its 
members,  nor  can  its  members  bring  suit  against  it. 

The  law  presumes  an  equal  division  of  profits,  but  the  division 
may  be  in  any  proportion,  by  agreement. 

A  partnership  may  be  a  trading  company  or  a  non-trading  company. 

A  trading  company  is  engaged  in  buying  and  selling;  a  npn- 
trading  company  is  organized  for  other  pursuits,  such  as  contracting, 
building,  practicing  law,  etc. 

Coownership  of  property  does  not  constitute  a  partnership. 

Every  change  in  the  personnel  of  a  partnership  brings  about  a 
dissolution  of  the  old  firm  and  a  new  relationship  or  new  firm. 

With  the  exception  of  a  limited  partner  the  classification  of  a 
partner  has  nothing  to  do  with  his  liability. 

Each  partner  owns  an  undivided  portion  of  every  article  owned 
by  the  firm. 

Each  partner's  power  over  firm  property  is  the  same. 

One  partner  cannot  give  a  valid  deed  to  real  estate  held  by  the 
firm. 

One  partner  can  be  required  to  account  to  the  other  partners  for 
private  gains  resulting  directly  or  indirectly  from  any  partnership 
business. 

A  partner  cannot  collect  an  extra  compensation  for  extra  service  or 
for  overtime. 

Notice  to  one  partner  is  notice  to  the  firm. 

An  innocent  partner  will  not  be  held  criminally  liable  for  the 
wrongdoings  of  his  copartner. 

A  majority  of  the  partners  have  power  over  any  business  trans- 
action within  the  scope  of  the  partnership  purposes. 

The  partners  must  agree  unanimously  to  change  the  firm  name,  to 
change  the  nature  of  the  business,  or  to  change  the  location. 

A  partnership  may  be  terminated  voluntarily  or  involuntarily. 

When  a  partnership  is  dissolved  the  power  to  carry  on  business  is 
terminated  except  for  winding  up  the  affairs  of  the  firm. 

A  retiring  partner  is  not  relieved  from  liability  in  the  case  of  a 
former  creditor  who  has  not  received  notice. 


322  PARTNERSHIP 

Partners  cannot  make  any  agreement  among  themselves  which 
will  be  effective  as  to  creditors  whereby  one  partner  will  not  be  liable 
to  third  persons  for  the  debts  or  obligations  of  the  partnership. 

The  powers  of  any  one  or  all  of  the  partners,  as  among  themselves, 
may  be  restricted  in  the  articles  of  copartnership,  but  these  restric- 
tions do  not  affect  a  third  party  unless  he  receives  notice  of  them. 


TEST  QUESTIONS 

1.  What  arc  the  advantages  of  a  partnership  over  trading  as  individ- 
uals? 

2.  What  risk  does  one  run  when  one  enters  a  partnership? 

3.  What  are  some  of  the  things  which  should  be  included  in  the  articles 
of  copartnership? 

4.  For  what  reason  are  limited  or  special  partnerships  formed? 

5.  Has  an  infant  in  a  partnership  a  right  to  withdraw  and  require 
the  other  partners  to  return  to  him  all  the  money  he  invested  on  the  ground 
that  he  is  an  infant? 

6.  What  is  the  good  will  of  a  firm?  Can  it  be  sold  separately  from  iVv 
business? 

7.  Holmes  is  a  member  of  the  firm  of  Crawford  and  Holmes.  Holmes 
sells  his  interest  in  the  business  to  Randall.    What  is  the  result? 

8.  Hendricks  borrows  $5000  from  Bagley  to  promote  a  new  business 
and  agrees  to  give  Bagley  25%  of  the  profits  for  the  use  of  the  money.  Are 
they  partners?     Explain. 

9.  Madden  agrees  to  act  as  manager  of  a  business  for  Flemming.  It 
is  agreed  that  Madden  is  to  have  20%  of  the  profits  for  his  services.  Does  a 
partnership  exist?    Explain. 

10.  Holbrook  and  Clark  form  a  partnership  under  the  firm  name  of  Hol- 
brook  &  Co.  Clark  is  a  dormant  partner.  Will  he  be  liable  for  the  obliga- 
tions of  the  firm? 

11.  Larson  bought  an  interest  in  the  partnership  of  J.  B.  White  and 
Company.  Does  this  make  Larson  a  partner  in  the  firm?  What  right  has 
Larson? 

12.  Hickey  and  Curren  are  partners  engaged  in  operating  a  factory. 
Hickey  contracts  to  sell  all  the  machinery  in  the  factory.  Has  he  this 
right?     Explain. 

13.  One  partner,  without  the  consent  of  the  other  partners,  gave  a 
mortgage  on  real  estate  owned  by  the  firm  for  the  purpose  of  raising  money 
to  pay  firm  debts.    Will  the  mortgage  be  binding? 


CASE  PROBLEMS  323 

14.  What  is  the  general  rule  for  the  division  of  profits? 

15.  Biddle  and  Beck  are  partners  in  the  hardware  business.  Biddle, 
without  consulting  his  partner,  gave  the  firm  note  for  a  bill  of  hardware. 
Would  the  firm  be  liable  on  the  note? 

16.  Would  a  third  party  be  affected  by  any  restrictions  of  the  powers  cf 
a  partner  in  the  articles  of  copartnership?    If  so,  when? 

17.  A  partner,  in  selling  goods  for  his  firm,  makes  false  representations 
amounting  to  fraud.    Are  the  other  partners  liable? 

18.  Why  is  it  advisable  for  a  partner  to  give  notice  when  he  withdraws 
from  a  firm? 

CASE  PROBLEMS 

Give  the  decision  and  the  principle  oj  law  involved  in  each  case. 

1.  Gaynor  and  Foust,  intending  to  engage  in  an  automobile  sales  and 
service  business,  agree  orally  to  invest  equal  amounts  of  cash  and  give  their 
time  to  the  business,  arranging  to  divide  the  profits  and  losses  equally. 
Does  this  oral  agreement  constitute  a  partnership?  Is  it  advisable  to  form  a 
partnership  in  this  way? 

2.  If  in  the  above  case  these  parties  in  their  oral  agreement  had 
expressly  understood  that  the  partnership  was  to  continue  for  five  years, 
would  the  agreement  have  been  binding? 

3.  George  Hicks  and  Charles  Hutchinson  agree  to  engage  as  partners 
in  the  business  of  manufacturing  furniture  under  the  name  of  Charles 
Hutchinson,  Hicks's  name  not  appearing  in  the  firm  and  he  taking  no  active 
part  in  its  management.  They  buy  lumber,  and  before  it  is  paid  for,  the 
firm  fails.  The  lumber  company  did  not  know  of  Hicks's  partnership  in  the 
business,  the  lumber  being  bought  in  Hutchinson's  name.  Can  they  hold 
Hicks  personally  for  the  lumber? 

4.  Grover  and  Martin  have  been  engaged  for  a  number  of  years  in  the 
wholesale  grocery  business.  They  dissolve  partnership,  and  Grover  retires 
from  the  firm,  though  he  still  allows  his  name  to  remain  in  the  firm.  After 
the  dissolution  Martin  bought  goods  from  Edwards  &  Co.,  using  the  name 
"Grover  &  Martin"  as  before.  Can  Edwards  &  Co.  hold  Grover  as  a 
partner? 

5.  Stanley  is  doing  business  under  the  name  of  A.  H.  Stanley,  he  and 
Moore  having  an  agreement  whereby  Moore,  who  owns  the  store,. con- 
tributes the  rent  and  loans  Stanley  $500.  Stanley,  on  the  other  hand, 
contributes  $500  and  his  time  in  conducting  the  business.  It  is  agreed  that 
the  profits  are  to  be  shared  equally.    Are  they  partners  as  to  third  parties? 


324  PARTNERSHIP 

6.  If  in  the  above  case  Moore  had  merely  furnished  the  store  and 
nothing  else,  and  the  agreement  had  been  that  Stanley  was  to  give  him  one 
fourth  of  the  profits  as  rent,  would  they  have  been  partners  as  to  third 
parties? 

7.  Evans,  Palmer,  and  Davis  are  engaged  in  conducting  business  as 
copartners.  Davis  dies  and  D.  C.  Davis,  his  son,  who  is  his  executor  and 
heir,  seeks  to  come  into  the  firm  as  a  partner  and  take  his  father's  place. 
What  are  his  rights? 

8.  Leland  and  Scott  were  engaged  in  manufacturing  and  selling  shoes, 
Leland,  without  the  knowledge  or  consent  of  Scott,  sold  100  pairs  of  shoes 
from  their  regular  selling  stock.    Had  he  the  right? 

9.  In  the  above  case  had  Leland  the  right  without  the  consent  of 
Scott  to  sell  all  the  shoes  they  had  manufactured? 

10.  In  problem  8,  suppose  Leland,  without  the  consent  of  Scott,  sold 
their  machinery  and  lasts  used  in  manufacturing  their  shoes.  Had  he  that 
right? 

11.  Long  and  Best  were  copartners  in  conducting  a  carting  business 
in  which  they  employed  six  automobile  trucks.  Long  gave  Brown  a  mort- 
gage on  three  of  the  trucks  to  secure  an  individual  debt.  Brown  knew  that 
the  trucks  were  partnership  property.  Had  Long  the  right  to  take  half  of 
the  trucks  as  his  share  of  the  partnership  assets  to  pay  an  individual  debt? 

12.  A  firm  having  been  engaged  in  manufacturing  collars  and  cuffs 
under  a  certain  brand  sell  out  their  business  to  Carpenter  and  include  in  the 
sale  all  of  their  stock  and  machinery.  They  afterwards  seek  to  sell  to  Young 
the  trade-mark  or  brand  under  which  they  had  manufactured  their  collars 
and  cuffs.    Carpenter  claims  it.    To  whom  does  it  belong? 

13.  Carlton  and  Brown  are  engaged  as  partners  in  buying  and  selling 
produce.  Brown  learAs  of  a  man  who  has  a  large  quantity  of  wheat,  and  as 
the  firm  are  looking  for  wheat  and  he  knows  that  they  can  afford  to  pay 
$.95  a  bushel  for  it,  he  goes  to  the  owner  and  tells  him  that  if  he  will  give  him 
one  cent  a  bushel  for  his  services,  he  will  find  him  a  purchaser  for  the  wheat 
at  $.95.  The  owner  agrees,  and  the  firm  buys  the  wheat.  Carlton  learns  of 
the  transaction  afterwards  and  sues  Brown  for  one  half  of  the  one  cent  per 
bushel  received  by  him.     Can  he  recover? 

14.  North  and  Bear  are  engaged  in  conducting  a  dry  goods  store. 
North  is  taken  sick  and  is  obliged  to  go  away  for  the  benefit  of  his  health. 
During  the  time  he  is  gone  Bear  conducts  the  business  alone,  and  later 
charges  the  firm  for  extra  services  in  running  the  business  alone.  Has  he  a 
right  to  such  compensation,  there  being  no  agreement  about  the  same? 


CASE  PROBLEMS  325 

15.  Adams,  Brown,  and  Coon  are  partners  in  the  hardware  business. 
Brown  gives  the  firm  of  Sloan  &  Co.  a  promissory  note,  due  in  60  days,  for  a 
bill  of  goods  bought  by  his  firm.  He  signs  his  note  in  the  firm  name.  Has  he 
authority? 

16.  In  the  above  case,  suppose  Brown  gives  the  firm's  note,  payable 
in  60  days,  in  payment  of  his  individual  grocery  bill.    Has  he  the  right? 

17.  Suppose  Adams  and  Brown,  in  problem  15,  wish  to  buy  a  quantity 
of  stoves  for  sale  in  the  course  of  their  business.  Coon  objects.  Have  they 
the  right  to  buy  them? 

18.  Suppose  Adams  and  Brown,  in  problem  15,  wishing  to  enlarge  their 
stock  and  make  a  general  department  store  of  it,  decide  to  add  a  line  of 
crockery,  glassware,  and  groceries.    Coon  objects.    Have  they  the  right? 

19.  Armour  and  Bowden  were  engaged  as  copartners  in  dealing  in 
horses.  Armour  sold  a  horse  to  Merritt  fraudulently  representing  it  to  be 
sound,  when  in  fact  it  had  the  glanders,  a  contagious,  incurable  disease. 
Merritt  sued  the  partners  for  fraud.    Was  Bowden  liable  as  well  as  Armour? 

20.  Randall  and  Cole  were  engaged  in  the  mercantile  business.  In  the 
course  of  their  business  they  received  a  note  from  Darrow  which  Randall  in- 
dorsed in  the  firm  name.  When  the  note  became  due  it  was  not  paid  by 
Darrow  but  was  protested,  and  notice  of  nonpayment  was  given  to  Randall. 
In  a  suit  against  Randall  and  Cole,  to  hold  them  as  indorsers,  Cole  set  up 
the  defense  that  he  had  not  had  notice.  Could  he  be  held,  or  was  his  defense 
good? 

21.  In  the  above  case,  when  the  action  is  brought  against  Randall  and 
Cole,  how  should  they  be  sued,  as  a  firm  or  as  individuals? 

22.  The  firm  of  Keeler  and  Wilder,  dry  goods  merchants,  fail,  having 
assets  amounting  to  $1500.  The  firm  owes  $5000.  Keeler  has  individual 
assets  amounting  to  $3000,  and  Wilder  has  individual  assets  amounting  to 
$10,000.  Page,  to  whom  the  firm  owes  $3000,  seeks  to  satisfy  his  claim  out 
of  Keeler's  personal  property,  while  Keeler  has  individual  creditors  to  whom 
he  owes  more  than  the  amount  of  his  property.  Can  Page  so  satisfy  his 
claim?    To  what  property  must  he  look  first?    Could  he  collect  from  Wilder? 

23.  Bates  is  a  personal  creditor  of  Wilder.  Can  he  proceed  against  the 
partnership  property  to  satisfy  his  claim?  Can  he  proceed  against  the 
individual  property  of  Wilder? 

24.  Hooker  and  Johnson  enter  into  articles  of  copartnership,  under 
which  they  agree  to  continue  the  business  as  partners  for  three  years.  At 
the  expiration  of  three  years,  does  the  partnership  become  dissolved?  Can 
the  parties  by  mutual  assent  dissolve  the  partnership  before  that  time? 


326  PARTNERSHIP 

25.  Suppose,  in  problem  24,  that  Hooker  sells  out  his  interest  to 
Cole,  who  is  accepted  as  a  partner,  but  the  firm  continues  under  the  old 
name  of  Hooker  and  Johnson.  The  new  firm  of  Johnson  and  Cole  con- 
tracts with  one  Everetts  for  some  merchandise.  Everetts  had  previously 
sold  to  the  old  firm  and  had  received  no  notice  of  Hooker's  withdrawal, 
although  the  latter  published  a  notice  of  dissolution  in  the  paper.  The  firm  of 
Johnson  and  Cole  fails,  and  Everetts  seeks  to  hold  Hooker  liable.  Can  he 
succeed? 

26.  If  in  the  above  case  Hooker  had  sent  Everetts  a  notice,  which  he  had 
received,  could  Hooker  be  held? 

27.  If  in  problem  25  Hooker  had  mailed  Everetts  a  notice  which 
Everetts  had  never  received,  could  Hooker  be  held? 

28.  If  in  problem  25  Everetts  had  had  notice  that  Hooker  was  no  longer 
a  partner,  although  it  had  not  been  sent  directly  to  him,  could  Hooker  be 
held? 

29.  If  in  problem  25  the  firm  of  Hooker  and  Johnson  had  never  dealt 
with  Everetts  before,  and  notice  of  the  change  of  partnership  had  been 
published  in  the  local  papers,  could  Hooker  be  held? 

30.  In  problem  25,  could  Cole  be  held  liable  on  a  contract  entered  into 
by  the  old  firm  which  Cole  had  not  expressly  agreed  to  pay? 

3 1 .  Raymond  and  Loomis  are  engaged  in  partnership,  but  do  not  agree. 
Raymond  is  engaged  in  wild  speculations,  is  habitually  intemperate,  and  is 
bringing  the  business  into  disrepute.  The  term  during  which  they  agreed  to 
conduct  their  partnership  has  not  yet  expired.  Can  Loomis  have  the  part- 
nership dissolved  in  an  equity  court? 

32.  If  in  the  above  case  Raymond  had  become  bankrupt,  would  this 
have  had  any  effect  upon  the  partnership? 

33.  The  partnership  firm  of  Carter,  Bailey  and  Co.  becomes  insolvent. 
The  members  of  the  firm  are  Carter,  Bailey,  and  Green.  The  firm  debts  are 
$25,000  and  the  firm  assets  are  $15,000.  Carter  has  private  property  $8000 
and  private  debts  $2000.  Bailey  has  private  property  $4000  and  no  private 
debts.  Green  has  no  private  property  and  private  debts  $2000.  How 
should  the  firm  and  private  property  be  distributed  among  the  several 
creditors? 

34.  Wilson  and  Fullar  are  partners.  By  mutual  agreement  Fullar 
withdraws  from  the  firm  and  Ross  assumes  the  firm  debts,  and  further  agrees 
to  release  Fullar  from  all  the  firm  obligations.  Atkins,  a  creditor  of  the  firm 
when  Fullar  was  partner,  sues  Wilson  on  a  firm  debt.  Wilson  has  become 
insolvent  and  does  not  pay.    Atkins  then  sues  Fullar.    Fullar  defends  on  the 


CASE  PROBLEMS  327 

ground  that  his  agreement  with  Wilson  releases  him  from  all  liability  for 
firm  debts.    Is  this  a  good  defense?    Explain  fully. 

35.  Barber,  18  years  of  age,  joined  the  firm  of  Noland  and  Roberts  as  a 
junior  partner  and  invested  $5000  cash.  At  the  end  of  the  year  he  became 
dissatisfied,  withdrew  from  the  firm,  and  demanded  the  return  of  his  money 
on  the  plea  that  he  was  an  infant.    Should  he  succeed?    Explain. 

36.  Archer  and  Daniels  are  partners  in  the  business  of  manufacturing 
hats.  Archer  sells  and  conveys  his  interest  in  the  firm  to  Shepard.  What 
effect  has  the  transfer  on  the  partnership?  What  rights  does  Shepard,  the 
purchaser,  acquire? 

37.  Austin,  Rowe,  and  Mason  are  partners  in  the  grocery  business 
located  on  Division  St.  Austin  and  Rowe  do  not  like  the  location  and 
desire  to  move  the  business  to  another  street.  Mason  objects.  Finally, 
during  the  absence  of  Mason,  the  other  partners  lease  a  place  on  Main  St. 
and  move  the  business.  Give  the  principle  of  law  involved  and  state  the 
rights  of  the  partners  in  the  matter. 

38.  Heath  and  Hoven  dissolve  partnership.  Heath  allows  his  name 
to  remain  on  the  door  and  on  the  stationery  used  in  the  business.  Whole- 
salers sell  goods  to  the  firm,  believing  Heath  to  be  still  a  partner.  Hoven 
becomes  insolvent  and  the  creditors  take  action  against  Heath.  Is  he  liable? 


CORPORATIONS 

I.   IN  GENERAL 

Origin,  —  Such  vast  undertakings  as  the  modern  railroads, 
steamship  lines,  large  manufacturing  plants,  etc.,  which  are 
controlled  by  private  parties,  have  made  it  desirable  and  in  fact 
necessary  for  a  large  number  of  persons  to  join  in  a  single  enter- 
prise that  can  be  more  successfully  promoted  by  means  of  their 
joint  capital  and  endeavor.  There  has  also  arisen  the  need  of 
some  method  of  organization  that  shall  be  free  from  certain 
features  of  the  copartnership  law.  This  need  is  met  by  the 
artificial  person  known  as  a  corporation. 

The  distinctive  features  of  a  corporation  are: 

1.  It  is  an  organization  that  survives  the  life  of  any  one  mem- 
ber. 

2.  The  interest  of  any  member  may  be  sold  or  transferred 
without  affecting  the  organization. 

3.  A  member  of  the  organization  is  not  personally  liable  for 
debts  of  the  corporation.  He  may  lose  what  he  invests  but  is 
subject  to  no  personal  Habihty. 

The  statutes  in  all  of  the  states  provide  now  for  the  formation 
of  corporations,  the  purpose  of  which  is  to  enable  a  number  of 
persons  to  associate  themselves  together  under  a  corporate 
name  in  some  enterprise  with  the  privileges  just  enumerated. 

Definition.  —  A  corporation  is  defined  as  a  collection  of  indi- 
viduals united  by  authority  of  law  into  one  body,  under  a  special 
name,  with  the  capacity  of  continuing  indefinitely  or  for  a  fixed 
period  and  of  acting  in  many  respects  as  an  individual. 

Corporations  are  in  the  eyes  of  the  law  separate  from  the 
members  who  comj^se  them.  The  property  of  the  corporation 
is  owned  by  it  and%ot  by  the  members  of  the  corporation,  and 
a  conveyance  or  sale  of  such  property  must  be  made  by  the 
corporation,  as  it  cannot  be  made  by  the  members  as  individuals. 

The  stockholders,  as  such,  cannot  convey  the  real  property  of  the  cor- 
poration, though  they  all  join  in  the  deed.  The  name  and  seal  of  the  cor- 
poration must  be  affixed  by  an  officer  or  agent  having  authority. 

—  Wheelock  v.  MouUon,  15  Vt.  519. 

328 


CORPORATIONS  IN  GENERAL  329 

Suits  in  favor  of  or  against  a  corporation  must  be  brought  by 
or  against  the  corporation  and  not  the  individuals  who  compose 
it  personally.  The  corporation  may  convey  to  or  take  from  its 
individual  members,  and  may  sue  them  and  be  sued  by  them. 

Created  by  the  State.  —  The  authority  of  the  state  is  always 
necessary  for  the  creation  of  a  corporation.  No  agreement  among 
the  members  can  accomplish  such  a  result.  The  mere  act  of  the 
members  alone  would  result  in  a  partnership.  The  corporation, 
therefore,  being  created  by  the  state,  has  only  such  powers  as 
are  conferred  upon  it  by  its  charter  or  act  of  incorporation. 

There  are  several  classifications  of  corporations,  but  the  only 
one  of  sufficient  importance  for  us  to  consider  here  is  the  division 
into  municipal  and  private  corporations. 

Municipal  Corporations.  —  Municipal  corporations  are  such 
as  are  created  for  the  purposes  of  government  and  the  manage- 
ment of  public  affairs.  Cities,  towns,  and  villages  are  illustra- 
tions of  such  corporations.  The  legislatures  give  them  certain 
powers  to  pass  laws  or  ordinances,  to  build  bridges,  improve 
streets,  etc.  They  may  take  and  hold  property,  and  may  sue  and 
be  sued  in  their  corporate  names. 

Private  Corporations.  —  Private  corporations  are  such  as  are 
created  for  private  purposes  and  for  the  management  of  affairs 
in  which  the  members  are  interested  as  private  parties.  All 
corporations  of  a  private  nature,  as  railroad,  bank,  or  insurance 
companies,  are  private  corporations  as  the  stockholders  are  inter- 
ested as  private  parties.  Private  corporations  are  either  stock  or 
non-stock  corporations.  Those  formed  for  the  pecuniary  profit 
of  their  members  generally  have  a  capital  stock  divided  into  a 
certain  number  of  parts  called  shares  of  stock.  A  member's 
interest  is  determined  by  the  number  of  shares  of  stock  which  he 
holds  in  the  company.  This  stock  is  represented  by  a  written  or 
printed  certificate,  which  can  be  transferred  from  one  person  to 
another  without  the  consent  of  the  other  members  of  the 
company. 

Stock  Certificates.  —  Stock  certificates  are  issued  to  pur- 
chasers of  stock  as  an  evidence  of  their  interest  in  the  corporation. 
These  certificates  state  the  number  of  shares  owned,  their  par 
value,  and  any  other  facts  affecting  the  stock.    Stock  certificates 


330  CORPORATIONS 

are  signed  by  the  president  and  secretary  or  treasurer  of  the 
corporation  and  are  sealed  with  the  corporate  seal. 

Non-Stock  Corporation.  —  A  non-stock  corporation  is  one  in 
which  there  is  no  stock  to  be  transferred,  and  the  membership 
of  any  individual  depends  upon  the  consent  of  the  other  mem- 
bers. Incorporated  societies  and  mutual  benefit  societies  are 
illustrations  of  this  class. 

Private  Stock  Corporations.  —  The  class  of  corporations  most 
common  in  this  country  and  to  which  we  will  direct  our  atten- 
tion, is  private  stock  corporations. 

The  following  are  the  powers  and  attributes  of  practically  all 
private  stock  corporations: 

1 .  To  have  continuous  succession  of  members  or  stockholders 
under  a  special  name. 

2.  To  buy,  sell,  and  hold  property. 

3.  To  enter  into  contracts,  and  to  do  all  things  necessary  to 
the  furtherance  of  the  corporate  business. 

4.  To  sue  and  be  sued  in  the  corporate  name. 

5.  To  have  a  common  seal. 
.    6.   To  make  by-laws. 

7.  To  appoint  directors,  officers,  and  agents. 

8.  To  dissolve  itself. 

Name  and  Continuous  Succession.  —  The  attribute  of  con- 
tinuous succession  under  a  special  name  is  essential  to  all  cor- 
porations. The  corporation  is  not  subject  to  dissolution  by  the 
death  or  withdrawal  of  a  member.  A  member  may  transfer  his 
shares  without  the  consent  of  his  associates,  and  the  transferee 
comes  into  the  corporation  as  a  member  without  in  any  way 
changing  or  affecting  its  existence.  A  necessary  attribute  of 
every  corporation  is  a  corporate  name.  This  is  essential,  as  the 
corporation,  being  distinct  from  its  members,  could  not  other- 
wise be  known. 

Real  Estate.  —  Most  corporations  have  the  f)ower  to  hold 
real  estate,  but  it  is  not  an  essential  to  a  corporation's  existence. 
So  also  the  power  to  use  a  seal  is  ordinarily  included  in  the 
privileges  of  a  corporation,  but  it  is  not  essential,  as  a  corporation 
can  contract  without  a  seal. 

By-laws.  —  1  he  right  to  make  by-laws  is  a  common  incident 


IN  GENERAL  331 

of  a  corporation's  powers.  It  is  unnecessary  to  make  them  when 
the  charter  is  sufficiently  full  to  provide  for  all  contingencies, 
but  usually  matters  of  detail  are  not  included  in  the  charter, 
provision  being  made  for  them  in  the  by-laws,  and  every  private 
corporation  has  the  imphed  power  to  make  them.  But  the  by- 
laws to  be  valid  must  be  reasonable,  consistent  with  the  charter, 
and  within  the  purposes  of  the  corporation.  They  are  generally 
adopted  by  a  majority  vote  of  the  stockholders,  and  having  once 
been  adopted,  bind  all  of  the  stockholders  whether  they  have 
assented  to  them  or  not. 

Limited  Liability.  —  One  of  the  most  important  attributes  of  a 
corporation  is  that  which  exempts  the  stockholders  from  liability 
for  the  debts  of  the  corporation.  In  a  partnership,  it  will  be 
remembered,  a  partner  is  personally  liable  for  the  debts  of  the 
firm,  but  this  is  not  so  in  the  case  of  a  corporation  except  when 
by  statute  the  personal  liability  of  a  stockholder  is  increased  to 
a  greater  or  less  extent.  In  some  corporations  the  law  makes 
stockholders  personally  hable  for  an  amount  equal  to  the  par 
value  of  their  stock. 

Incorporation.  —  A  corporation  can  be  created  only  by  the 
law  of  the  state.  This  may  be  a  special  law  which  creates  and 
gives  power  to  one  particular  company,  although  the  constitu- 
tions of  most  of  the  states  prohibit  the  legislature  from  creating  a 
corporation  by  a  special  law  except  in  some  particular  cases.  The 
great  majority  of  corporations  are  formed  under  the  general  law, 
which  does  not  of  itself  create  the  corporation  but  authorizes 
persons  to  form  a  corporation  by  taking  certain  prescribed  steps. 
It  generally  requires  that  articles  of  incorporation  be  executed 
by  the  incorporators  and  filed  in  some  public  office.  These 
articles  must  usually  set  forth  the  names  and  residence  of  the 
incorporators,  the  name  by  which  the  proposed  corporation  shall 
be  known,  its  principal  place  of  business,  the  objects  and  purposes 
of  the  association  (which  must  be  lawful),  the  period  of  time  for 
which  it  is  to  exist,  the  amount  of  capital  stock  and  the  number  of 
shares  into  which  it  is  divided,  the  number  of  directors  and  the 
names  of  those  who  are  to  act  as  directors  until  an  election  is  held. 

Any  person  who  has  the  capacity  to  enter  into  a  contract  may 
be  an  incorporator.    The  statutes  generally  prescribe  the  number 


332  CORPORATIONS 

of  incorporators  necessary  to  organize.  The  minimum  number 
required  in  most  states  is  three,  though  in  a  few  states  more  are 
required. 

In  most  of  the  states  a  certain  number  of  the  incorporators 
are  required  to  be  residents  of  the  state  in  which  the  company 
is  incorporated. 

QUESTIONS 

1.  What  are  the  three  distinctive  features  of  a  corporation? 

2.  How  is  a  corporation  defined? 

3.  What  makes  this  form  of  organization  desirable? 

4.  What  authority  is  necessary  to  create  a  corporation? 

5.  How  are  corporations  classified? 

6.  What  is  a  municipal  corporation?    What  is  a  private  corporation? 

7.  What  is  the  difference  between  stock  and  non-stock  corporations? 

8.  What  are  the  powers  of  a  private  corporation? 

9.  What  is  the  meaning  of  the  term  "continuous  succession"? 

10.  What  are  the  by-laws  of  a  corporation? 

11.  What  is  the  liability  of  a  stockholder  in  a  corporation? 

12.  How  may  a  business  be  incorporated? 

13.  Who  may  be  an  incorporator? 

14.  What  number  of  persons  generally  may  organize  a  corporation? 

15.  What  are  articles  of  incorporation? 

2.    POWERS  AND  LIABILITIES  OF  CORPORATIONS 

Powers  Limited.  —  A  corporation  has  only  such  powers  as 
are  conferred  upon  it  by  its  charter  or  articles  of  incorporation 
These  powers  may  be  expressly  conferred,  or  they  may  be  im- 
plied, either  because  they  are  incidental  to  a  corporate  existence, 
as  the  right  of  succession  and  the  right  to  have  a  corporate  name, 
or  because  they  are  necessary  in  order  to  exercise  the  powers 
expressly  conferred. 

A  charter  which  gave  a  corporation  the  authority  to  make  and  keep  in 
repair  a  road  to  the  top  of  Mt.  Washington,  to  take  toll  of  passengers  and 
carriages,  to  build  and  own  toll  houses,  and  to  take  land  for  a  road,  was  held 
not  to  authorize  the  corporation  to  establish  a  stage  and  transportation  line, 
nor  to  buy  carriages  and  horses  for  that  purpose.  Corporations  have  no 
powers  except  such  as  are  given  them  by  their  charter,  or  such  as  are  inciden- 
tal and  necessary  to  carry  into  effect  the  purposes  for  which  they  were 
established.  —  Downing  v.  Mt.  Washington  Road  Co.,  40  N.  H.  230. 

Implied  Powers.  —  The  powers  that  are  incidental  to  a  corpo- 
rate existence  and  that  will  always  be  implied,  are  these:  to  have 


POWERS  AND  LIABILITIES  333 

continuous  succession  during  the  life  of  the  corporation,  to  have  a 
corporate  name  by  which  to  contract  and  to  sue  and  be  sued,  to 
purchase  and  hold  real  and  personal  property,  to  have  a  common 
seal,  and  to  make  by-laws. 

A  corporation  has  also  the  implied  powers  that  are  reasonably 
necessary  for  the  execution  of  the  powers  expressly  granted  and 
not  expressly  or  impliedly  excluded.  A  corporation  generally  has 
the  implied  power  to  borrow  money  whenever  the  nature  of  its 
business  renders  it  necessary  or  expedient  to  do  so. 

The  general  power  of  doing  business  granted  to  a  corporation  carries 
with  it  the  power  to  borrow  money  for  the  legitimate  objects  of  the  corpora- 
tion. —  Wright  V.  Hughes,  119  Ind.  324. 

A  corporation  formed  for  the  purpose  of  encouraging  athletic  exercises 
has  the  power  to  borrow  money  for  building  a  clubhouse  upon  lands  leased 
by  it,  under  the  provisions  of  the  statute  that  such  a  corporation  may  hold 
real  and  personal  estate  and  may  purchase  or  erect  suitable  buildings  for  its 
siccommodsition.  —  Bradbury  v.  Boston  Canoe  Club,  153  Mass.  77. 

It  also  has  the  implied  power  to  make,  indorse,  or  accept  bills 

of  exchange  and  promissory  notes,  if  such  is  the  usual  or  proper 

means  of  accomplishing  the  results  for  which  it  was  created. 

Every  corporation  has,  as  a  necessary  incident  of  the  powers  expressly 
granted  by  its  charter,  the  power  of  incurring  debts  in  the  course  of  its 
business,  and  of  making  and  indorsing  negotiable  instruments  in  payment 
thereof.  —  State  v.  Passaic  Turnpike  Co.,  27  N.  J.  Law  217. 

To  sell  or  mortgage  real  property  owned  by  it  is  another  im- 
plied power  of  a  corporation. 

A  corporation  chartered  with  power  to  purchase  and  hold  water  power, 
created  by  the  erection  of  dams,  and  to  hold  real  estate  may,  when  its  water 
privileges  can  no  longer  be  profitably  used,  sell  its  land. 

—  Dupee  V.  Boston  Water  Power  Co.,  114  Mass.  37. 
A  corporation,  without  special  authority  in  its  charter,  may  dispose  of 
lands,  goods,  and  chattels  as  it  deems  expedient. 

—  White  Wafer  Va.  Canal  Co.  v.  Vallette,  21  How.  (U.  S.)  414. 

But  a  corporation  has  no  implied  power  to  enter  into  a  con- 
tract of  partnership  or  suretyship. 

The  Central  Railroad  &  Banking  Co.  of  Georgia,  which  was  authorized 
by  its  charter  to  construct  and  operate  a  railroad  between  the  cities  of 
Savannah  and  Macon  and  to  organize  and  carry  on  a  banking  business,  has 
no  power,  express,  implied,  or  incidental,  to  purchase  and  run  a  steamboat 
on  the  Chattahoochee  River,  which  is  no  part  of  its  route,  nor  to  form  a 
partnership  with  a  natural  person  for  carrying  on  that  business. 

—  Central  Railroad  Co,  v,  Smith,  76  Aia.  572. 


334  CORPORATIONS 

As  a  general  rule  it  may  be  said  that  when  a  corporation  is 

given  general  authority  to  engage  in  business,  it  takes  the  powers 

of  a  natural  person  to  make  all  the  necessary  and  proper  contracts 

to  enable  it  to  attain  its  legitimate  objects. 

A  corporation  organized  as  a  life  insurance  company  has  power  to 
borrow  money  and  secure  its  payment  by  mortgaging  its  real  estate.  When 
general  authority  is  given  a  corporation  to  engage  in  business,  it  takes  the 
power,  in  the  absence  of  charter  restraint,  just  as  a  natural  person  enjoys  it 
with  all  of  its  incidents,  and  may  borrow  money  to  attain  its  legitimate  ob- 
jects the  same  as  an  individual.  —  Wright  v.  Hughes,  119  Ind.  324. 

Acts  Ultra  Vires.  —  When  a  corporation  performs  acts  not 
within  its  power  to  perform,  the  acts  are  said  to  be  ultra  vires. 
An  ultra  vires  contract,  if  executory,  cannot  be  enforced;  but 
most  courts  hold  that  if  the  defense  of  ultra  vires  will  work  an 
injustice,  it  will  not  be  allowed,  and  this  is  also  true  if  the  party 
seeking  to  enforce  the  contract  has  performed  his  part. 

The  Nassau  Bank,  which  had  subscribed  for  stock  in  a  railroad  corpora- 
tion, sued  for  its  share  of  the  profits.  Held,  that  the  plaintiff  was  not  author- 
ized to  make  such  a  contract,  and  the  courts  would  not  enforce  it. 

—  Nassau  Bank  v.  Jones,  95  N.  Y.  115. 

Where  a  corporation  has  guaranteed  the  payment  of  other  persons' 
notes  without  consideration,  an  act  not  authorized  by  its  charter,  it  may 
plead  the  defense  of  ultra  vires  and  the  contract  will  not  be  enforced. 
— Deaton  Grocery  Co.  v.  International  Harvester  Co.,  47  Tex.  Civil  Appeal,  267. 

Liability  for  Acts  of  Agents.  —  A  corporation  is  liable  to  the 
same  extent  as  a  natural  person  for  the  frauds  and  wrongs 
of  its  agents  and  servants,  committed  in  the  course  of  their 
employment. 

Goodspeed  brought  an  action  against  a  banking  corporation  for  dam- 
ages for  maliciously  bringing  vexatious  and  unjust  lawsuits  against  him. 
The  defense  was  that  a  corporation  was  not  liable  for  such  a  wrong,  but  the 
court  held  that  a  suit  of  this  nature  may  be  maintained  against  a  corporation. 

—  Goodspeed  v.  Bank,  22  Conn.  530. 

QUESTIONS 

1.  What  powers  has  a  corporation? 

2.  What  is  meant  by  implied  powers? 

3.  Mention  some  of  the  implied  powers  of  a  corporation. 

4.  Has  a  corporation  implied  power  to  enter  into  a  contract  of  partner- 
ship or  suretyship? 

5.  What  general  rule  may  be  laid  down  as  to  a  corporation's  powers? 

6.  What  are  "ultra  vires  acts"?    Give  an  example. 

7.  What  is  the  liability  of  a  corporation  for  acts  of  its  agents? 


MEMBERSHIP  IN  A  CORPORATION  335 

3.    MEMBERSHIP  IN  A  CORPORATION 

Stockholders.  —  Membership  in  a  private  stock  corporation  is 
acquired  by  the  ownership  of  one  or  more  shares  of  the  capital 
stock  in  the  corporation.  This  may  be  acquired  by  subscrip- 
tion to  the  capital  stock  either  before  or  after  incorporation,  by 
purchase  from  the  corporation,  or  by  a  transfer  from  the  owner. 
The  certificate  of  stock  is  a  written  acknowledgment  of  the 
interest  of  the  holder  in  the  corporation.  When  the  stock  is 
subscribed  for  after  the  incorporation  of  the  company,  it  is  simply 
a  contract  between  the  corporation  and  the  subscriber. 

Greer  was  soliciting  subscriptions  for  the  building  of  a  railway,  and  took 
a  subscription  book,  signed  therein  himself,  and  persuaded  others  to  sub- 
scribe. He  kept  the  book  about  six  months,  and  then,  because  of  a  disagree- 
ment with  the  company,  he  cut  out  his  own  name  from  the  book  and  returned 
it  to  the  company.  Held,  that  by  placing  his  name  in  the  book  he  had  per- 
fected a  contract  with  the  company,  and  was  just  as  much  bound  as  if  he 
had  left  his  name  in  the  book.  —  Greer  v.  Railway  Co.,  96  Pa.  State  391. 

Rights  of  the  Stockholders.  —  While  the  individual  stock- 
holder has  but  little  part  in  the  management  of  the  corporation, 
he  has  certain  rights  as  a  holder  of  common  stock  which  may  be 
stated  as  follows: 

1.  To  be  notified  of  all  stockholders'  meetings. 

2.  To  cast  one  vote,  in  person  or  by  proxy,  for  each  share  of 
stock  held,  on  all  matters  which  come  before  the  stockholders 
for  action. 

3.  To  share  proportionately  in  all  dividends  declared  on  the 
common  stock. 

4.  To  share  proportionately  in  the  net  assets,  in  the  event  of 
dissolution. 

5.  To  inspect  the  corporate  books  and  accounts. 

6.  To  sell  and  transfer  stock  which  he  owns. 

The  rights  of  holders  of  preferred  stock  are  the  same  as  those 
of  the  common  stockholder  except  as  extended  or  restricted  by 
conditions  under  which  the  stock  was  issued. 

Stock  Subscriptions.  —  The  subscriptions  of  several  persons 
to  an  agreement  to  take  stock  in  a  corporation  thereafter  to  be 
formed,  is  a  continuing  offer  to  the  corporation  to  be  formed, 
which  may  be  accepted  by  the  corporation,   and  is  binding. 


336  CORPORATIONS 

The  delivery  of  the  certificate  is  merely  evidence  of  the  owner- 
ship of  the  shares,  and  is  not  necessary  to  make  a  subscriber  a 
stockholder. 

Dividends.  —  Out  of  the  surplus  or  net  profits  of  the  corporate 
business  the  directors  may  vote  a  dividend.  This  is  a  certain 
per  cent  upon  the  capital  stock,  and  when  the  dividend  is  declared 
the  stockholders  are  entitled  to  their  respective  shares.  Until 
such  dividend  is  declared,  a  stockholder  has  no  legal  right  to  a 
share  of  the  profits,  although  upon  its  being  wrongfully  with- 
held a  suit  in  equity  may  be  brought  to  compel  the  corporation 
to  declare  a  dividend. 

Whether  the  earnings  of  a  corporation  shall  be  distributed  among  its 
stockholders  is  purely  discretionary  and  until  a  dividend  has  actually  been 
declared,  the  stockholder  has  no  claim  thereto. 

—  Lauman  v.  Foster,  157  Iowa  275. 

Preferred  Stock.  —  The  dividend  declared  must  be  equal  on 
all  the  stock  except  where  a  part  of  the  stock  is  preferred.  In 
many  corporations  a  certain  part  of  the  capital  stock  is  declared 
in  the  certificates  to  be  preferred  and  the  balance  common  stock. 
The  preferred  stock  gives  the  holder  rights  and  privileges  not 
enjoyed  by  the  holders  of  thecommon  stock.  These  rights  usually 
include  a  prior  claim  for  dividends.  Six  per  cent  preferred 
stock  would  entitle  the  holder  to  a  dividend  of  6  per  cent  before 
any  dividend  could  be  declared  on  the  common  stock.  Cumula- 
tive preferred  stock  entitles  the  holder  to  dividends  at  the  pre- 
scribed rate  in  every  year.  If  the  dividend  is  omitted  in  any  year 
it  must  be  made  up  in  subsequent  years.  Preferred  stock  usually 
has  also  a  prior  right  to  the  corporate  assets  in  case  of  dissolution. 
Preferred  stock  is  generally  considered  a  safer  investment  than 
common  stock,  because  of  its  prior  rights,  but  may  not  be  so 
profitable,  as  the  dividends  are  limited  to  the  rate  fixed. 

Transfer  of  Stock.  —  Shares  of  stock  are  transferred  from  one 
holder  to  another  by  an  assignment  which  is  usually  upon  the 
back  of  the  certificate  of  stock  and  in  a  form  somewhat  hke  the 
following:  — 

For  value  received  I  hereby  sell,  assign,  and  transfer  unto  James  D. 
Scott  twenty  shares  of  the  capital  stock  represented  by  the  within  certificate, 
and  do  hereby  irrevocably  constitute  and  appoint  William  A.  Willis  my 


MEMBERSHIP  IN  A  CORPORATION  337 

attorney  to  transfer  the  said  stock  on  the  books  of  the  within  named  cor- 
porktion,  with  full  power  of  substitution  in  the  premises. 

Dated  November  10,  19 —  George  W.  Ellis. 

In  the  presence  of 

E.  A.  Wagner. 

The  attorney  named  to  transfer  the  stock  is  generally  the 
secretary  of  the  company. 

Stock  in  a  corporation  is  subject  to  sale  and  transfer  like  any 
other  kind  of  personal  property. 

The  transfer  of  stock  must  be  recorded  in  the  books  of  the 
corporation  and  a  new  certificate  issued  to  the  transferee  before 
he  is  legally  a  stockholder.  Until  such  transfer  is  made  he  cannot 
exercise  the  rights  of  a  stockholder,  such  as  voting  and  receiving 
dividends,  although  as  between  him  and  his  transferor  he  is  the 
owner  of  the  stock  and  entitled  to  the  benefits  therefrom. 

Benedict  was  the  owner  of  ten  shares  of  the  stock  of  the  D .  L.  &  W.  R.  R. 
Co.,  transferable  only  on  the  books  of  the  company  upon  surrender  of  the 
certificate.  In  1856  he  sold  his  stock  to  Brisbane  and  executed  a  power  of 
attorney  to  Brisbane  to  transfer  the  shares  on  the  books  of  the  company. 
Brisbane  took  the  certificate,  but  the  transfer  on  the  books  was  not  made. 
Benedict  died  and  after  his  death,  in  1876,  his  administrator  procured  a 
transfer  of  the  shares  to  himself  and  also  procured  the  payment  of  divi- 
dends credited  to  Benedict  between  1856  and  1876.  Brisbane  sued  the 
company  for  the  value  of  the  ten  shares  transferred  to  the  administrator  and 
also  for  the  amount  of  the  dividends  paid  to  him.  Held,  that  the  company 
was  liable  for  the  value  of  the  ten  shares,  as  it  had  no  right  to  issue  a  new 
certificate  without  the  surrender  of  the  old  one,  but  it  was  not  Hable  for  the 
dividends  paid,  as  it  was  entitled  to  pay  such  dividends  to  the  person  who 
should  appear  on  their  books  as  the  stockholder  of  record. 

—  Brisbane  v.  D.  L.  b^  W.  R.  R.  Co.,  25  Hun  (N.  Y.)  438. 

QUESTIONS 

1.  How  is  membership  in  a  corporation  acquired? 

2.  What  are  the  rights  of  the  individual  stockholder? 

3.  What  are  the  powers  of  stockholders? 

4.  Is  the  one  who  subscribes  for  stock  bound  to  take  it? 

5.  Under  what  conditions  has  a  stockholder  a  legal  right  to  a  share 
of  the  profits? 

6.  What  is  preferred  stock? 

7.  Is  stock  in  a  corporation  subject  to  sale  and  transfer?    Explain. 

8.  How  may  shares  of  stock  be  transferred  from  one  holder  to  another? 

9.  Must  a  transfer  of  stock  appear  on  the  books  of  the  company? 
10.   What  is  the  liability  of  a  stockholder  to  creditors? 


338  CORPORATIONS 

4.    MANAGEMENT  OF  CORPORATIONS 

Vote  of  Stockholders.  —  As  a  general  rule,  each  stockholder 
in  a  corporation  is  bound  by  all  acts  adopted  by  a  vote  of  a 
majority  of  the  stockholders  of  the  corporation,  provided  such 
acts  are  within  the  scope  of  the  powers  and  authority  conferred 
by  the  charter. 

A  corporation  was  authorized  to  receive  and  hold  for  the  benefit  of  a 
high  school  any  land  by  gift,  devise,  or  purchase.  A  stockholder  brought 
action  to  restrain  the  corporation  from  purchasing  certain  real  estate,  claim- 
ing that  it  could  not  afford  it  and  the  result  would  be  the  bankruptcy  of  the 
corporation.  Held,  that  the  action  could  not  be  maintained,  as  the  majority 
of  the  stockholders  had  voted  for  the  purchase.  Every  stockholder  contracts 
that  the  will  of  the  majority  shall  govern  in  all  matters  coming  within  the 
limits  of  the  act  of  incorporation. 

—  Dudley  v.  Kentucky  High  School,  72  Ky.  576. 

But  the  majority  cannot  bind  the  minority  by  any  acts  out- 
side of  the  powers  conferred  by  the  charter. 

It  was  provided  in  the  articles  of  association  of  the  Enterprise  Loan  Asso- 
ciation that  it  should  continue  in  operation  eight  years,  unless  it  should 
sooner  have  sufficient  funds  to  pay  its  debts  and  redeem  its  stock.  A  reso- 
lution was  passed  by  a  majority  of  the  stockholders  dissolving  the  association 
before  the  time  limit,  and  it  was  held  that  without  the  consent  of  all  the 
stockholders  and  with  unredeemed  stock  outstanding,  such  a  resolution  is  of 
no  effect.  —  Barton  v.  Enterprise  Loan  Association,  114  Ind.  226. 

In  most  cases,  the  management  of  the  corporation  is  vested 
in  the  directors,  and  then  the  authority  vested  in  the  stock- 
holders is  the  election  of  the  directors.  The  directors  alone  are 
authorized  to  act  in  the  management  of  the  business.  The  right 
to  make  by-laws  is  generally  in  the  majority  of  the  stockholders, 
although  in  some  cases  that  power  is  by  charter  vested  in  the 
directors. 

Meetings  and  Voting.  —  Notice  of  the  time  and  place  of  the 
stockholders'  meeting  must  be  given  to  each  stockholder  unless 
it  is  definitely  designated  by  the  charter  or  by-laws.  Each 
stockholder  is  usually  entitled  to  one  vote  for  each  share  of 
stock  owned  by  him,  although  at  common  law  each  stockholder 
had  but  one  vote  without  regard  to  the  number  of  shares  of 
stock  he  owned.  It  is  sometimes  provided  that  each  share  of 
stock  is  entitled  to  as  many  votes  as  there  are  directors  to  be 


MANAGEMENT  OF  CORPORATIONS  339 

elected,  and  that  these  votes  may  all  be  cast  for  one  director,  or 
divided  as  the  stockholder  may  desire.  This  is  called  ''cumula- 
tive  voting"  and  is  designed  to  secure  to  a  minority  interest  repre- 
sentation on  the  board  of  directors.  At  common  law  the  right  to 
vote  could  be  exercised  only  in  person,  but  now  the  right  to  vote 
by  proxy  is  generally  conferred  by  statute.  The  proxy  or  author- 
ity to  vote  is  in  the  form  of  a  written  power  of  attorney,  and  is 
revocable  at  the  pleasure  of  the  person  executing  it. 

Directors.  —  As  stated  above,  the  active  management  of  the 
corporate  business  is  usually  vested  in  a  board  of  directors 
selected  by  a  majority  of  the  stockholders.  The  directors  act 
by  a  majority  vote.  The  powers  and  duties  of  the  directors  and 
other  officers  are  generally  fully  defined  in  the  by-laws. 

A  director  is  not  personally  liable  for  the  acts  of  the  corpora- 
tion, but  he  is  considered  in  the  nature  of  a  trustee  for  the  stock- 
holders. He  must  act  prudently  and  with,  reasonable  diligence  in 
their  interest  and  is  liable  for  his  negligence  or  wrongdoing  which 
results  in  loss  to  them.  He  must  act  with  the  utmost  good  faith, 
and  any  personal  dealings  he  may  have  with  the  corporation, 
such  as  borrowing  money  or  selling  goods,  are  regarded  with 
suspicion. 

QUESTIONS 

1.  Does  "majority  rule"  apply  to  the  stockholders  of  a  corporation? 
Explain. 

2.  To  what  extent  can  a  majority  of  the  stockholders  bind  all? 

3.  How  is  a  corporation  managed? 

4.  When  must  stockholders  be  notified  of  a  meeting? 

5.  (fl)  How  do  stockholders  vote?    (6)  What  is  "cumulative  voting"? 

6.  Explain  the  proxy  vote. 

7.  How  are  the  powers  and  duties  of  directors  defined? 

8.  What  officers  are  usually  selected  to  manage  a  corporation? 

5.   RIGHTS  OF  CREDITORS  OF  CORPORATIONS 

In  General.  — .  The  creditors  of  a  corporation  generally  have 
the  same  rights  and  remedies  against  the  corporation  and  its  prop- 
erty that  they  would  have  against  a  natural  person.  They  may 
obtain  a  judgment  against  it  and  issue  an  execution  against  its 
property,  or  adopt  the  other  remedies  that  they  would  have 


340  CORPORATIONS 

against  an  individual.  Aside  from  the  rights  of  creditors  to 
proceed  against  the  property  belonging  to  the  corporation,  there 
are  cases  in  which  the  creditor  may  also  look  to  the  stockholder, 
notwithstanding  the  general  rule  that  a  stockholder  is  not  indi- 
vidually hable  for  the  debts  of  the  corporation. 

Liability  of  Stockholders.  —  The  first  of  these  cases  is  where 
the  original  purchaser  of  stock  from  a  corporation  has  not  paid 
to  the  corporation  the  full  par  value  of  his  stock,  and  the  pay- 
ment of  the  amount  is  necessary  to  pay  the  creditors.  It  is  held 
that  such  a  stockholder  must  contribute  the  full  amount  of  his 
subscription  for  stock  if  the  amount  is  needed  by  the  creditors. 
This  amount  is  a  part  of  the  capital  stock  of  the  company,  and  the 
capital  is  held  by  the  courts  to  be  in  the  nature  of  a  trust  fund  for 
the  payment  of  the  corporate  debts. 

Where  a  person  subscribes  for  a  certain  number  of  shares  of  bank  stock, 
but  does  not  fully  pay  for  it,  he  cannot  afterwards  by  an  agreement  with 
the  bank  diminish  the  number  of  his  shares  so  as  to  affect  the  creditors  of 
the  bank.  Stock  subscribed  to  a  bank  is  in  the  nature  of  a  trust  fund  for  the 
payment  of  its  liabilities.  —  Payne  v.  Bullard,  23  Miss.  88. 

Creditors  of  a  corporation  who  have  exhausted  their  remedy  against  the 
corporation  can,  in  order  to  satisfy  their  judgment,  proceed  against  a  stock- 
holder to  enforce  his  liability  to  the  company  for  the  amount  remaining  due 
upon  his  subscription  for  stock.  —  Hatch  v.  Dana,  loi  U.  S.  205. 

The  stockholder  is  also  liable  to  the  creditors  of  the  corpora- 
tion if  any  part  of  the  capital  assets  has  been  unlawfully  dis- 
tributed or  paid  out  to  him,  either  directly  or  indirectly,  leaving 
creditors  unpaid.  This  may  be  accomplished  by  distributing 
funds  as  dividends  when  there  are  no  surplus  profits  or  in  other 
ways,  but,  however  accomplished,  the  stockholder  may  be  com- 
pelled to  refund  for  the  benefit  of  the  creditors  the  amount  so 
received. 

The  stockholders  of  a  corporation  sold  all  the  assets  of  the  corporation 
and  received  and  kept  the  proceeds  of  the  sale.  It  was  held  that  the  stock- 
holders were  liable  for  the  value  of  the  goods  sold,  as  their  act  was  preju- 
dicial to  the  rights  of  creditors,  leaving  certain  creditors  unpaid. 

The  statutes,  which  in  some  of  the  states  have  imposed  addi- 
tional liabilities  upon  the  stockholders,  vary  greatly.  Some  make 
the  stockholder  liable  for  all  debts  until  the  whole  capital  stock 
is  paid  in.    Others  make  him  liable  for  a  sum  equal  to  the  amount 


DISSOLUTION  OF  A  CORPORATION  341 

of  stock  held  by  him  in  addition  to  the  amount  yet  due  on  his 
stock,  and  so  on,  many  different  provisions  being  found  in  the 
different  states. 

In  Alabama  it  was  held  that  by  statute  a  stockholder  in  a  life  insurance 
company  was  liable  for  the  debts  of  the  company,  not  only  for  the  amount 
of  his  unpaid  subscription  for  stock,  but  also  for  an  additional  sum  equal  to 
the  amount  of  his  stock. 

—  McDonnell  v.  Alabama  Gold  Life  Insurance- Co.,  85  Ala.  401. 

In  case  of  the  failure  of  an  incorporated  bank  (national  or 
state  bank)  each  stockholder  may  lose  the  amount  he  has  in- 
vested in  the  stock  and  is  liable  to  creditors  for  an  additional 
amount  equal  to  the  par  value  of  his  stock. 


QUESTIONS 

1.  What  is  the  general  rule  as  to   the  rights  of  creditors  of  a  cor- 
poration? 

2.  To  what  extent  is  a  stockholder  liable  for  the  debts  of  the  corporation? 
Explain  in  full. 

3.  Is  the  liability  of  a  stockholder  in  a  national  bank  greater  than  the 
liability  of  a  stockholder  in  a  manufacturing  concern?    Explain. 


6.    DISSOLUTION  OF  A  CORPORATION 

A  private  corporation  may  be  dissolved  in  any  one  of  four 
ways :  — 

1.  By  the  expiration  of  its  charter. 

2.  By  the  surrender  of  its  charter  with  the  consent  of  the 
state. 

3.  By  an  act  of  the  legislature  repealing  its  charter,  under 
the  power  reserved  by  the  state  when  granting  the  charter. 

4.  By  the  forfeiture  of  its  franchise  or  charter,  upon  the 
judgment  of  a  proper  court,  for  misuse  or  non-use  of  its  powers. 

I.  Expiration  of  Charter.  —  The  charter  usually  stipulates 
that  the  corporation  shall  be  formed  for  a  certain  time,  as  for 
twenty  or  fifty  years.  When  this  period  expires,  the  association 
no  longer  has  an  existence,  and  is  therefore  dissolved. 

Where  the  existence  of  a  corporation  was  for  a  term  of  years,  the  cor- 
poration is  dissolved  upon  the  expiration  of  the  time  limited  without  further 
action.  —  Merges  v.  Altenbrand,  45  Mont.  35.5. 


342  CORPORATIONS 

2.  Surrender  of  Charter.  —  The  dissolution  may  be  effected 
by  the  association  surrendering  its  charter,  but,  the  charter  being 
a  contract  between  the  state  and  the  association,  this  can  be  done 
only  with  the  consent  of  the'state.  The  statutes  generally  provide 
certain  formalities  which  must  be  complied  with  before  the  dis- 
solution will  be  granted. 

3.  Repeal  of  Charter.  — A  charter  when  granted  to  the  cor- 
poration and  accepted  by  it,  constitutes  a  contract  between  the 
state  and  the  corporation.  This  contract  exists  under  the  clause 
in  our  federal  constitution  prohibiting  any  state  legislature  from 
passing  a  law  impairing  the  obligation  of  the  contract.  The 
state  cannot,  therefore,  repeal  the  charter  of  a  company  unless  it 
has  expressly  reserved  that  right  or  unless  the  corporation  assents 
thereto. 

4.  Forfeiture  of  Charter.  —  The  state  may  institute  a  suit  in 
the  proper  court  to  cause  a  corporate  charter  to  be  forfeited.  The 
ground  for  such  a  suit  is  the  abuse  or  misuse  of  the  corporate 
powers,  or  the  neglect  or  non-use  of  the  same.  But  the  mere 
abuse  or  misuse  alone  does  not  work  a  forfeiture  of  the  charter. 
This  results  only  from  the  judgment  of  the  court  after  a  hearing 
in  which  the  corporation  has  a  chance  to  appear  and  present  its 
side  of  the  case.  A  forfeiture  will  be  decreed  by  the  courts  when 
the  corporation  is  guilty  of  acts  or  has  omitted  to  do  certain 
things  which  by  statute  are  expressly  made  a  cause  of  forfeiture 
of  its  franchise. 

In  one  of  the  cases  under  the  famous*'  Anti-Trust  "laws,  it  was  held  that 
when  a  corporation  has  been  guilty  of  misconduct  in  the  exercise  of  its 
franchise,  which  restricts  or  stifles  competition,  such  acts  will  be  regarded 
as  contrary  to  public  policy  and  sufficient  ground  for  forfeiting  the  corporate 
franchise,  even  without  proof  of  evil  intent  or  injury  to  the  public,  since  the 
inevitable  tendency  of  such  acts  is  injury  to  the  public. 

—  State  Y.  Standard  Oil  Co.,  224  U.  S.  270. 

When  a  railway  company  without  authority  of  law  leases  its  road  to 
another  railway  company  with  all  of  its  rights,  property,  and  franchises,  for 
a  long  period  of  time,  it  thereby  abandons  the  operation  of  its  road  and  is 
subject  to  forfeiture.  —  State  v.  Atchison  Railroad  Co.,  24  Nebr.  143. 

Combining  with  other  corporations  to  form  an  unlawful 
trust  or  monopoly  is  sufficient  ground  for  a  dissolution.  This 
is  illustrated  in  the  case  of  the  State  v.  Standard  Oil  Co.,  above 
quoted. 


JOINT  STOCK  COMPANIES  343 

Effect  of  Dissolution.  —  The  effect  of  the  dissolution  is  that 
thereafter  the  corporation  no  longer  exists  for  any  purpose,  but 
the  statutes  in  practically  all  of  the  states  now  make  provisions 
under  which  the  business  of  dissolved  corporations  may  be 
liquidated  and  settled  and  the  rights  of  stockholders  and  cred- 
itors may  be  adjusted.  The  usual  method  of  doing  this  is  the 
appointment  of  a  receiver  to  wind  up  the  corporate  affairs,  col- 
lect bills  due  to  the  corporation,  and  pay  its  creditors,  after 
which  the  remainder  is  divided  among  the  stockholders,  accord- 
ing to  the  amount  of  stock  they  hold. 

Held,  that  on  the  dissolution  of  a  corporation  at  the  expiration  of  the 
term  of  its  corporate  existence,  each  stockholder  has  the  right,  as  a  general 
rule,  to  have  the  corporate  property  converted  into  money,  whether  it  be 
necessary  for  the  payment  of  debts  or  not. 

—  Mason  v.  Pewahic  Mining  Co.,  133  U.  S.  50. 

QUESTIONS 

1.  In  what  four  ways  may  a  private  corporation  be  dissolved? 

2.  Explain  the  usual  method  of  dissolution. 


7.   JOINT  STOCK  COMPANIES 

Definition.  —  A  joint  stock  company  is  a  form  of  association 
in  appearance  resembling  a  corporation  while  in  reality  it  is 
nothing  more  than  a  partnership. 

Incorporation  is  expensive  in  England,  and  there  the  joint 
stock  company  is  common,  but  in  the  United  States  the  joint 
stock  company  is  seldom  found,  as  corporations  generally  are 
more  satisfactory. 

As  has  been  said,  joint  stock  companies  resemble  corporations 
in  form.  They  have  officers  and  by-laws.  Their  capital  is 
divided  into  shares  which  under  their  by-laws  are  transferable. 
Their  by-laws  generally  regulate  the  mode  of  conducting  their 
business  and  electing  their  officers.  A  member  of  a  joint  stock 
company,  although  he  may  style  himself  but  a  stockholder,  is  a 
partner,  and  as  such  is  liable  to  the  same  extent  and  in  the  same 
manner  as  any  ordinary  partner. 

Holden  and  others  associated  themselves  together  without  incorpora- 
tion under  the  name  of  the  Bridgeport  Cooperative  Association  for  the  pur- 


344  CORPORATIONS 

pose  of  procuring  meat  and  provisions  at  a  lower  rate  for  the  members  of  the 
organization.  Sales  were  made  to  persons  not  members  at  a  higher  rate, 
but  no  profit  was  expected  beyond  the  expense  of  management.  The  mem- 
bers held  meetings  and  elected  officers.  Held,  that  the  individuals  com- 
posing the  association  were  liable  personally  as  partners  for  goods  purchased 
by  the  managers  of  the  association  for  its  benefit.  It  made  no  difference  that 
they  did  not  intend  to  become  individually  responsible  or  that  they  did  not 
know  or  believe  that  they  would  be.  —  Davison  v.  H olden,  55  Conn.  103. 

Sale  of  Shares.  —  It  is  generally  held  that  under  the  by-lav^^s 
of  the  company  a  member  may  sell  or  transfer  his  shares  W\\h- 
out  working  a  dissolution  of  the  company  as  would  be  the  result 
in  a  partnership.  And  the  death  of  a  member  does  not  work 
its  dissolution.  In  some  of  the  states  joint  stock  companies  are 
given  certain  privileges  by  statute;  as,  for  instance,  allowing 
them  to  sue  or  be  sued  in  the  name  of  their  president  or  treas- 
urer. The  business  of  a  joint  stock  company  cannot  be  changed 
or  extended  without  the  consent  of  all  the  members,  although  in 
its  ordinary  business  arrangements  a  majority  will  govern. 

QUESTIONS 

1.  What  is  a  joint  stock  company? 

2.  Why  is  it  that  joinl  stock  companies  are  not  common  in  this  country? 

3.  In  what  ways  does  a  joint  stock  company  resemble  (a)  a  corporation? 
{h)  a  partnership? 

5.  Are  shares  of  stock  in  a  joint  stock  company  transferable?    Explain. 

6.  What  is  the  liability  of  a  stockholder  in  a  joint  stock  company? 


IMPORTANT  POINTS 

A  corporation  is  an  artificial  person  created  or  authorized  by  law. 

A  corporation  is  composed  of  a  number  of  natural  or  corporate 
stockholders. 

Stockholders  as  individuals  do  not  represent  the  corporation. 

A  stockholder  may  deal  with  the  corporation,  may  sue  it  and  may 
be  sued  by  it. 

Change  in  the  membership  of  a  corporation  does  not  affect  its 
existence. 

The  special  powers  of  a  corporation  are  granted  by  its  charter. 

The  capital  stock  or  share  capital  is  the  total  amount  of  stock  the 
corporation  is  authorized  by  its  charter  to  issue. 

The  capital  is  the  actual  assets  or  property  owned  by  the  corpora- 
tion. 


IMPORTANT  POINTS  345 

Common  stock  is  the  ordinary  stock  of  a  corporation,  issued  with- 
out special  privileges  or  restrictions. 

Preferred  stock  has  some  preference  as  to  dividends  and  assets 
over  other  stock  in  the  same  corporation. 

The  directors  of  a  corporation  are  elected  by  the  stockholders. 

The  directors  usually  elect  the  officers  of  a  corporation  (presi- 
dent, vice-president,  secretary,  and  treasurer). 

A  stock  certificate  is  issued  by  the  officers  of  the  corporation. 

No  two  corporations  in  the  same  state  are  permitted  to  have  the 
same  name. 

A  majority  of  the  stock  and  not  a  majority  of  the  stockholders 
usually  controls  a  stock  corporation. 

A  director  in  a  corporation  must  be  a  stockholder  unless  this 
requirement  is  waived  by  a  provision  in  the  charter. 

The  directors  of  a  corporation  represent  the  stockholders. 

The  transfer  of  stock  must  be  entered  on  the  books  of  the  com- 
pany before  the  purchaser  becomes  a  stockholder  of  record,  entitled 
to  vote  and  share  in  the  dividends. 

PARTNERSHIPS  COMPARED  WITH  CORPORATIONS 

A  partnership  is  a  relation  resulting  from  a  contract. 

A  corporation  is  an  artificial  person  created  by  law. 

Change  in  the  membership  of  a  partnership  operates  as  a  disso- 
lution. 

Change  in  the  membership  of  a  corporation  does  not  affect  its 
existence. 

A  partner  is  individually  liable  for  his  firm's  obligations. 

A  stockholder's  liability  is  limited. 

Each  partner  is  a  business  agent  of  the  partnership. 

A  corporation's  business  is  managed  by  officers. 

Membership  in  a  partnership  results  from  agreement  between 
the  partners. 

An  interest  in  a  stock  corporation  is  acquired  by  purchasing  stock. 

Suit  against  a  partnership,  in  most  of  the  states,  must  be  brought 
in  the  name  of  the  individuals  composing  it. 

A  corporation  has  the  power  to  sue  and  be  sued  in  its  corporate 
name. 

A  partnership  cannot  contract  with  or  transact  business  with  its 
members. 

In  business  transactions  a  corporation  bears  the  same  relation  to 
its  members  as  to  any  one  else. 

TEST  QUESTIONS 

I.   Would  it  be  possible  to  form  a  corporation  with  only  one  incor- 
porator? 


346  CORPORATIONS 

2.  Is  it  possible  for  a  corporation  to  be  organized  without  capital 
stock?     Give  an  illustration. 

3.  What  are  the  principal  differences  between  a  partnership  and  a 
corporation? 

4.  What  advantages  has  a  corporation  over  a  partnership? 

5.  In  a  stock  corporation,  how  are  the  profits  divided? 

6.  What  is  the  usual  procedure  in  forming  a  corporation? 

7.  What  is  the  difference  between  par  value  and  actual  value  as  applied 
to  stock? 

8.  What  is  the  difference  between  the  "capital  stock"  and  "capital"? 

9.  Which  would  you  consider  the  safer  investment,  preferred  stock  or 
common  stock? 

10.  Sometimes  common  stock  is  more  valuable  than  preferred  stock. 
Why? 

11.  What  is  necessary  after  purchasing  stock  in  a  corporation  before 
the  purchaser  is  entitled  to  the  privileges  of  a  stockholder? 

12.  Can  a  stockholder  who  owns  more  than  half  of  the  stock  in  a  cor- 
poration assume  the  management  of  the  business  and  make  contracts? 

13.  Explain  the  organization,  management,  and  control  of  a  stock  cor- 
poration. 

14.  What  are  the  usual  duties  of  the  directors  of  a  corporation  and  to 
whom  are  they  responsible? 

15.  What  is  the  usual  course  of  procedure  in  the  dissolution  of  a  cor- 
poration? 

CASE  PROBLEMS 

Give  the  decision  and  the  principle  of  law  involved  in  each  case. 

1.  The  Union  Supply  Co.  was  a  corporation  which  owned  a  piece  of 
real  property  that  was  sold  by  the  officers  of  the  corporation,  the  deed  being 
signed  personally  by  all  of  the  stockholders  in  their  individual  names.  Was 
the  conveyance  good? 

2.  Webster  owes  the  Standard  Novelty  Works,  a  corporation,  $500. 
Three  persons  own  all  the  stock  of  the  corporation.  They  in  their  individual 
names  sue  Webster  for  the  amount.    Can  they  succeed? 

3.  The  Georgia  Railroad  Co.  has  authority  by  its  charter  to  main- 
tain a  railroad  between  the  towns  of  Atlanta  and  Brunswick.  It  buys  boats 
and  seeks  to  establish  a  boat  system  on  one  of  the  rivers  running  into  the 
town  of  Brunswick.    Has  it  that  authority? 


CASE  PROBLEMS  347 

4.  The  American  Dry  Goods  Co.  is  incorporated  for  the  purpose  of 
buying  and  seDing  goods.  In  the  course  of  its  business  the  company  borrows 
$1000  and  gives  its  note  therefor.    Has  it  this  authority? 

5.  The  above-named  corporation  owns  a  store  and  land  where  it  con- 
ducts business.  It  places  a  mortgage  upon  this  property  for  the  purpose  of 
raising  $5000.     Has  it  the  right? 

6.  The  above-named  corporation  forms  a  partnership  with  one  Greene 
in  an  adjoining  town  for  the  purpose  of  conducting  a  branch  dry  goods 
store.    Has  it  the  authority? 

7.  The  Southern  Tobacco  Co.,  a  corporation,  entered  into  a  com- 
bination with  twenty  other  manufacturers  of  tobacco  for  the  purpose  of 
forming  a  tobacco  trust  and  combining  all  of  their  business  under  one  man- 
agement. An  action  is  brought  to  dissolve  the  Southern  Tobacco  Co.  Can 
it  be  done? 

8.  Newell  is  a  stockholder  in  a  corporation.  He  learns  that  the  profits 
for  the  past  year  have  been  about  10  per  cent  on  the  amount  of  capital 
stock,  but  no  dividends  have  been  declared.  He  therefore  sues  the  corpora- 
tion for  an  amount  equal  to  10  per  cent  on  his  stock.  Can  he  recover?  If  not, 
what  remedy  has  he  against  the  corporation? 

9.  In  the  above  case  suppose  Newell  sells  his  stock  to  Jordan  on 
January  i,  and  no  transfer  is  made  on  the  company's  books.  On  July  i  a 
dividend  of  10  per  cent  is  declared.  Jordan  enters  a  claim  against  the  com- 
pany for  the  dividend.    Can  he  recover? 

10.  Downs,  Butler,  and  Hargan  are  original  subscribers  to  the  stock  of 
the  Standard  Glass  Co.  They  have  paid  to  the  corporation  only  50  per  cent 
of  the  par  value  of  their  stock.  The  corporation  fails  and  the  creditors, 
finding  that  the  company  has  no  assets,  sue  Downs,  Butler,  and  Hargan 
personally  for  the  amount  of  their  subscription  not  yet  paid.  Can  they 
recover? 

11.  After  a  corporation  is  practically  bankrupt,  certain  of  the  assets 
are  sold  and  the  proceeds  distributed  among  the  stockholders.  When  the 
corporation  fails,  can  the  creditors  recover  those  proceeds  from  the  stock- 
holders? 

12.  A  certain  corporation  has  earned  dividends  equal  to  10  per  cent  of 
the  stock.  The  directors  do  not  declare  a  dividend  but  put  the  earnings  aside 
into  a  surplus  fund.  Beam,  a  stockholder,  brings  an  action  to  compel  the 
directors  to  declare  a  dividend.    Will  he  succeed?    Explain. 


BANKRUPTCY 

Early  Bankruptcy  Legislation.  —  Bankruptcy  legislation  can 
be  traced  to  an  old  Roman  law  under  which  an  insolvent  debtor 
might,  by  surrendering  all  of  his  property  to  his  creditors,  obtain 
immunity  from  the  penalty  imposed  by  the  law,  which  was 
imprisonment  and  severe  corporal  punishment.  The  first  English 
bankruptcy  law  was  passed  in  1542  and  forms  the  basis  for  much 
of  our  bankruptcy  legislation.  This  English  law,  however, 
contained  no  provision  for  voluntary  bankruptcy  or  for  the 
discharge  of  the  debtor's  remaining  unpaid  debts. 

National  Bankruptcy  Laws.  —  The  United  States  Constitution 
gives  Congress  the  power  to  tnact  uniform  bankruptcy  laws. 
Congress  has  enacted  five  different  bankruptcy  laws.  The  last 
law  —  the  only  one  to  be  considered,  as  the  others  have  all 
been  repealed  —  was  enacted  in  1898  and  as  amended  in  1903, 
1906,  1 9 10,  and  191 7  is  still  in  force. 

The  object  of  the  National  Bankruptcy  Law  is  to  protect  an 
insolvent  debtor's  property  from  seizure  by  any  one  or  more 
creditors  to  the  exclusion  of  other  creditors  and  to  prevent  an 
insolvent  debtor  from  giving  one  creditor  preference  over  other 
creditors  in  the  distribution  of  his  assets  or  payment  of  his  debts. 

Solvency  and  Insolvency.  —  Any  business  firm  is  said  to  be 
solvent  so  long  as  its  available  assets  are  equal  to  or  greater  than 
its  liabilities,  but  just  as  soon  as  its  liabiHties  exceed  its  assets  a 
state  of  insolvency  exists.  Insolvency  is  said  to  be  determined 
by  one's  inability  to  pay  one's  debts.  A  state  of  temporary  insol- 
vency may  come  about  through  inability  to  realize  promptly  on 
the  assets  of  a  business.  A  debtor  may  be  insolvent  due  to  the 
fact  that  he  is  not  able  to  meet  his  debts  as  they  mature,  although 
his  assets  are  greater  than  his  liabilities.  What  he  lacks  is 
sufficient  cash  and  if  time  were  given  him  he  could  convert  his 
assets  into  cash  and  meet  his  obligations. 

Bankruptcy  Statute.  —  The  national  bankruptcy  law  provides 
that   ''Any  person,   except  a  municipal,   railroad,   or  banking 

348 


FIVE  ACTS  OF  BANKRUPTCY  349 

corporation,  shall  be  entitled  to  the  benefits  of  this  act  as  a 
voluntary  bankrupt. 

''Any  natural  person,  except  a  wage-earner  or  a  person  en- 
gaged chiefly  in  farming  or  the  tillage  of  the  soil,  any  unincor- 
porated company,  and  any  moneyed,  business,  or  commercial 
corporation,  except  a  municipal,  railroad,  insurance,  or  banking 
corporation,  owing  debts  to  the  amount  of  one  thousand  dollars 
or  over,  may  be  adjudged  an  involuntary  bankrupt  upon  default 
or  an  impartial  trial,  and  shall  be  subject  to  the  provisions  and 
entitled  to  the  benefits  of  this  Act.  The  bankruptcy  of  a  cor- 
poration shall  not  release  its  officers,  directors,  or  stockholders, 
as  such,  from  any  liabiHty  under  the  laws  of  a  state  or  territory, 
or  of  the  United  States." 

Before  a  person  may  be  considered  a  bankrupt  he  must  be 
insolvent  in  the  sense  that  his  property  at  a  fair  valuation  is  less 
than  his  liabilities,  and  in  addition  to  this  he  must  commit  one 
of  the  five  acts  of  bankruptcy  hereafter  described. 

Five  Acts  of  Bankruptcy.  —  Before  a  court  can  decree  an 
insolvent  debtor  bankrupt  without  his  own  consent  and  take 
charge  of  his  property  for  the  protection  of  his  creditors,  the 
debtor  must  commit  an  act  of  bankruptcy,  and  this  act  must  be 
committed  within  four  months  of  the  filing  of  a  petition  by  the 
creditors.  Insolvency  alone  does  not  give  creditors  the  right  to 
start  bankruptcy  proceedings  against  a  debtor.  He  must  have 
committed  one  of  the  following  five  acts : 

1.  Conveyed,  transferred,  concealed,  or  removed,  or  per- 
mitted to  be  concealed  or  removed,  any  part  of  his  property,  with 
intent  to  hinder,  delay,  or  defraud  his  creditors,  or  any  of  them. 

2.  Transferred,  while  insolvent,  any  portion  of  his  property 
to  one  or  more  of  his  creditors  with  intent  to  prefer  such  creditors 
over  his  other  creditors.  The  transfer  must  result  in  diminishing 
the  insolvent  estate.  Thus  the  payment  while  insolvent  of  a 
preexisting  debt  will  suffice,  but  the  payment  of  a  debt  which 
arose  simultaneously  with  or  after  payment  would  not  amount 
to  a  preference.  For  example,  the  purchase  of  merchandise  on 
^'C.O.D."  or ''C.W.O."  (cash  with  order)  terms  will  not  result 
in  a  preference,  or  diminution  of  the  estate,  but  merely  in  the 
substitution  of  one  asset  (merchandise)  for  another  asset  (cash) . 


350  BANKRUPTCY 

3.  Suffered  or  permitted,  while  insolvent,  any  creditor  to 
obtain  a  preference  through  legal  proceedings,  and  not  having,  at 
least  five  days  before  a  sale  or  final  disposition  of  any  property 
affected  by  such  preference,  vacated  or  discharged  such  pref- 
erence. This  would  result  in  depleting  the  insolvent's  estate,  to 
the  benefit  of  one  creditor  and  to  the  detriment  of  all  others. 

4.  Made  a  general  assignment  for  the  benefit  of  his  creditors, 
or,  being  insolvent,  applied  for  a  receiver  or  trustee  for  his 
property,  or,  because  of  insolvency,  a  receiver  or  trustee  having 
been  put  in  charge  of  his  property  under  the  laws  of  a  state,  of 
a  territory,  or  of  the  United  States. 

5.  Admitted  in  writing  his  inability  to  pay  his  debts  and  his 
willingness  to  be  adjudged  a  bankrupt  on  that  ground. 

Until  the  insolvent  debtor  commits  one  of  these  acts,  the 
creditors  may  not  force  him  into  bankruptcy.  Sometimes,  in 
order  to  create  an  act  of  bankruptcy,  one  creditor,  with  the 
approval  of  the  others, will  bring  suit  for  a  claim,  obtain  judgment, 
and  levy  execution  against  the  debtor's  property.  Thus  an  act 
of  bankruptcy  will  be  committed  and  the  creditors  may  then 
file  their  petition. 

Settlement  of  a  debtor's  affairs  by  a  bankruptcy  court  may 
be  of  advantage  to  both  the  creditors  and  the  debtor.  Creditors 
grow  impatient  and  insist  upon  immediate  settlement,  sue  the 
debtor,  obtain  judgment,  and  authorize  sale  of  the  debtor's 
property,  usually  at  a  sacrifice,  and  the  amount  realized  is  not 
sufficient  to  pay  all  creditors  in  full.  The  bankruptcy  law  affords 
the  debtor  protection  against  such  an  invasion  by  the  appoint- 
ment of  a  receiver.  A  receiver  may  be  appointed  upon  applica- 
tion of  creditors  or  the  debtor  himself.  When  the  application  is 
accompanied  by  proof  of  the  debtor's  inability  to  meet  his  debts 
as  they  mature,  a  bankruptcy  court  will  appoint  a  trustee  or 
receiver  to  sell  the  assets  of  the  debtor  and  with  the  proceeds 
settle  with  the  creditors  on  a  pro  rata  basis.  In  this  way  the 
assets  can  be  marketed  to  a  greater  advantage  and  the  interests 
of  all  protected. 

.  Trustee  and  Creditors.  —  As  soon  as  a  person  is  adjudged  a 
bankrupt  a  meeting  of  his  creditors  is  called,  at  which  time  they 
can  examine  the  bankrupt  and  do  any  other  business  proper  at 


DUTIES  OF  BANKRUPT  351 

the  time.  As  soon  as  the  trustee  is  appointed  and  he  has  filed  his 
bond,  he  becomes  vested  by  operation  of  law  with  the  title  of. 
the  bankrupt  to  all  of  his  property  except  that  exempt  by  law,  to 
all  property  transferred  in  fraud  of  creditors,  and  to  all  rights 
arising  upon  his  contracts  and  agreements.  It  is  then  the  duty 
of  the  trustee  to  convert  the  assets  into  cash,  v/hich  he  divides 
among  the  creditors  whose  claims  have  been  accepted. 

Duties  of  Bankrupt.  —  As  soon  as  the  voluntary  petition  is 
filed,  or  after  the  hearing  upon  the  involuntary  petition,  if 
allowed,  the  party  is  a  bankrupt,  and  the  duties  imposed  upon 
him  are  as  follows: 

I .    He  must  attend  the  first  meeting  of  his  creditors,  if  directed 
by  the  court,  and  also  the  hearing  upon  the  application  for  his 
discharge. 
,     2.   He  must  comply  with  the  lawful  orders  of  the  court; 

3.  Examine  the  proofs  of  claims  filed  against  his  estate; 

4.  Execute  such  papers  as  shall  be  ordered  by  the  court; 

5.  Execute  to  his  trustee  a  transfer  of  all  his  property  in 
foreign  countries; 

6.  Inform  his  trustee  of  any  attempts  of  his  creditors  to 
evade  the  provisions  of  the  bankruptcy  law,  coming  to  his 
knowledge,  or  of  any  attempt  of  creditors  to  prove  false  claims; 

7.  Prepare,  make  oath  to,  and  file  in  court  within  ten  days 
after  the  adjudication,  if  an  involuntary  bankrupt,  and  with  the 
petition,  if  a  voluntary  bankrupt,  a  schedule  of  his  property, 
showing  the  amount  and  kind  of  property,  the  location  thereof, 
its  money  value  in  detail,  and  a  list  of  his  creditors,  showing  their 
residences,  if  known  (if  unknown,  that  fact  to  be  stated),  the 
amounts  due  each  of  them,  the  consideration  therefor,  the  se- 
curity held  by  them,  if  any,  and  a  claim  for  such  exemptions  as 
he  may  be  entitled  to. 

8.  He  must  submit  to  an  examination  concerning  the  conduct 
of  his  business,  the  cause  of  his  bankruptcy,  his  dealings  with 
his  creditors  and  other  persons,  the  amount,  kind,  and  where- 
abouts of  his  property,  and,  in  addition,  all  matters  which  may 
affect  the  administration  and  settlement  of  his  estate.  No 
testimony  given  by  him  shall  be  offered  in  evidence  against  him 
in  any  criminal  proceeding. 


352  BANKRUPTCY 

The  bankrupt  is  entitled  to  the  same  exemptions  as  are 
allowed  to  any  other  debtor  by  the  laws  of  the  state  in  which  he 
resides. 

The  National  Bankruptcy  Law  further  provides  that  when  a 
debtor  avails  himself  of  the  law  and  his  assets  are  all  liquidated, 
he  may  be  discharged  in  bankruptcy  proceedings  and  relieved 
from  any  further  obligations  even  though  his  assets  were  not 
sufficient  to  pay  his  creditors  in  full. 

Discharge  in  Bankruptcy.  —  The  bankrupt,  after  one  month 
and  within  twelve  months  after  being  so  declared,  may  file  an 
application  for  a  discharge  in  the  court  of  bankruptcy,  and  the 
judge  shall  grant  the  discharge  unless  at  the  hearing  held  thereon 
it  shall  appear  that  the  bankrupt  has  ''committed  an  offense 
punishable  by  imprisonment  as  herein  provided ;  or  with  intent 
to  conceal  his  financial  condition,  destroyed,  concealed,  or  failed 
to  keep  books  of  account  or  records  from  which  such  condition 
might  be  ascertained;  or  obtained  property  on  credit  from  any 
person  upon  a  materially  false  statement  in  writing  made  to  such 
person  for  the  purpose  of  obtaining  such  property  on  credit;  or 
at  any  time  subsequent  to  the  first  day  of  the  four  months 
immediately  preceding  the  filing  of  the  petition,  transferred, 
removed,  destroyed,  or  concealed,  or  permitted  to  be  removed, 
destroyed,  or  concealed,  any  of  his  property  with  intent  to 
hinder,  delay,  or  defraud  his  creditors;  or  in  voluntary  proceed- 
ings been  granted  a  discharge  in  bankruptcy  within  six  years;  or 
in  the  course  of  the  proceedings  in  bankruptcy  refused  to  obey 
any  lawful  order  of,  or  to  answer  any  material  question  approved 
by,  the  court." 

The  discharge  of  the  bankrupt  acts  as  a  discharge  of  all  of  the 
debts  and  contracts  of  the  bankrupt  at  the  time  of  the  filing  of 
the  petition  except  a  certain  class  of  debts  which  are  tinged  with 
wrong' or  fraud,  or  debts  due  the  government,  or  debts  due 
creditors  who  were  not  duly  notified  of  the  proceedings,  or  whose 
claims  were  not  listed  by  the  bankrupt  on  his  schedules. 

Hartman  is  insolvent;  his  assets  are  fifteen  thousand  dollars  and  his 
liabilities  are  twenty  thousand.  He  is  discharged  in  bankruptcy  by  settling 
with  his  creditors  at  seventy-five  cents  on  a  dollar.  This  relieves  him  from 
further  payment  and  his  creditors  will  have  to  lose  twenty-five  per  cent  of 
the  claims  they  had  against  him. 


SETTLEMENT  353 

Settlement.  —  The  creditors  frequently  join  in  a  composition 
agreement  whereby  they  accept  a  pro  rata  share  of  the  assets  in 
full  settlement  of  their  claims.  The  legal  effect  is  practically  the 
same  as  a  final  determination  by  the  bankruptcy  court,  it  avoids 
delay,  and  usually  gives  the  creditors  more  money  by  saving  the 
expenses  of  the  proceeding.  Such  an  agreement  is  not  binding 
on  any  creditor  who  does  not  join  in  it. 

The  Remedy  of  Iniunction.  —  Instead  of  asking  for  the 
appointment  of  a  receiver,  the  creditors  may  ask  for  an  injunction 
to  restrain  other  creditors  from  taking  action  which  would  affect 
their  rights  or  interests  as  creditors.  If  an  injunction  will  serve 
to  protect  the  rights  of  all  creditors  the  court  may  not  appoint 
a  receiver,  but  instead  grant  the  remedy  of  injunction. 

Exemption  Laws.  —  Laws  are  in  force  in  nearly  all  if  not  all 
of  the  states  by  which  certain  property  is  exempt  from  seizure 
to  satisfy  a  judgment  for  debt.  Usually  household  furniture  up 
to  a  certain  amount,  varying  in  the  different  states,  tools  used 
in  following  a  trade,  and  certain  articles  necessary  in  carrying  on 
a  business  are  exempted.  The  laws  of  one's  own  state  should  be 
consulted. 

QUESTIONS 

1.  What  is  the  object  of  the  National  Bankruptcy  Law? 

2.  When  is  a  business  firm  said  to  be  solvent? 

3.  When  is  a  business  firm  said  to  be  insolvent? 

4.  What  conditions  may  cause  a  state  of  temporary  insolvency? 

5.  What  are  the  principal  provisions  of  the  bankruptcy  statute? 

6.  When  does  a  state  of  bankruptcy  exist? 

7.  What  are  "acts  of  bankruptcy"? 

8.  What  are  the  principal  duties  imposed  upon  one  who  is  a  bankrupt? 
g.  In  what  way  does  the  bankruptcy  law  protect  debtors? 

10.  Who  is  a  trustee  or  receiver? 

11.  What  are  the  principal  duties  of  the  trustee  or  receiver? 

12.  What  is  the  meaning  of  "discharge  in  bankruptcy"? 

13.  What  is  the  effect  of  a  discharge  in  bankruptcy? 

14.  What  is  the  special  remedy  of  injunction? 

15.  What  are  exemption  laws? 


COURTS  AND  THEIR  JURISDICTION 

Courts.  —  We  have  dealt  with  law  as  defining  the  rights  and 
limitations  of  individuals  in  their  dealings  with  one  another;  but 
these  rights  must  often  prove  of  Httle  value  in  protecting  the 
individual  in  his  property  and  personal  relations  unless  a  means 
of  enforcing  them  is  provided.  For  this  purpose  the  constitu- 
tions of  the  United  States  and  of  the  several  states  have  estab- 
lished a  system  of  Courts. 

Jurisdiction.  —  The  jurisdiction  of  a  court  is  defined  as  the 
power  to  hear  and  determine  a  cause.  The  courts  of  a  particular 
class  are  empowered  to  hear  only  a  certain  fine  of  causes  or  dis- 
putes; while  another  line  of  cases,  involving  different  amounts  or 
arising  between  different  parties  or  being  of  a  different  nature, 
will  be  determined  by  entirely  different  courts.  It  is  essential  in 
all  cases  that  the  particular  court  before  which  a  question  is 
brought  for  determination  shall  have  jurisdiction,  for  if  it  has 
not,  its  decision  is  of  no  effect,  and  may  be  set  aside  at  any  time. 

Jurisdiction  of  Subject-matter.  —  The  jurisdiction  of  a  court 
must  be  both  of  the  subject-matter  and  of  the  person.  Juris- 
diction of  the  subject-matter  means  the  power  of  the  court 
regarding  the  subject  or  thing  in  dispute.  Thus,  in  an  action  con- 
cerning the  title  to  a  particular  piece  of  land  in  one  judicial  district 
in  a  state,  if  the  case  were  brought  in  the  district  court  of  an- 
other judicial  district,  this  court  would  have  no  jurisdiction  of 
the  question  of  the  title  to  land  outside  its  own  district; 
therefore,  there  would  be  a  lack  of  jurisdiction  of  the  subject- 
matter.  Again,  the  justice  courts  have  no  power  to  determine 
questions  affecting  the  title  to  real  property,  and,  therefore,  the 
above  case  could  not  be  determined  by  any  justice  court,  as 
such  court  has  no  jurisdiction  of  the  subject-matter. 

Jurisdiction  of  the  Person.  —  Jurisdiction  of  the  person,  or  of 
the  party,  against  whom  an  action  or  cause  is  brought,  is  neces- 
sary, or  the  decision  will  have  no  effect  as  against  such  person 
or  party.     Jurisdiction  of  the  person  is  generally  acquired  by 

354 


JURISDICTION  OF  THE  COURTS  355 

service  of  a  notice  or  command  upon  the  party,  which  notice 
is  generally  called  a  summons  and  will  be  treated  later. 

Classification  of  Courts.  —  The  courts  of  the  United  States 
and  of  the  different  states  may  be  arranged  under  several  classi- 
fications, as  follows: 

Courts  of  Original  Jurisdiction.  —  Courts  of  Original  Juris- 
diction are  those  courts  that  have  authority  to  hear  and  deter- 
mine questions  when  they  are  first  presented  for  judicial  deter- 
mination or  decision.  They  are  the  courts  that  hear  both  sides 
of  the  dispute  and  render  their  decision  therefrom. 

Courts  of  Appellate  Jurisdiction.  —  A  Court  of  Appellate 
Jurisdiction  has  no  power  to  hear  a  case  when  it  first  arises.  It 
can  only  review  the  decision  of  a  lower  court  when  such  deci- 
sion is  brought  before  it  for  determination.  The  taking  of  a 
case  from  a  lower  court  to  a  higher  one  is  called  an  appeal. 

Original  and  Appellate  Jurisdiction.  —  There  are  other  courts 
that  have  in  some  cases  original  and  in  other  appellate  juris- 
diction; that  is,  they  have  jurisdiction  to  hear  appeals  from  some 
lower  court  or  courts,  and  they  can  also  try  certain  cases  in  the 
capacity  of  courts  of  original  jurisdiction. 

Courts  of  Record  and  Not  of  Record.  —  Courts  are  known  as 
Courts  of  Record  and  Courts  Not  of  Record.  Courts  of  record 
are,  as  their  name  implies,  those  which  are  required  by  law  to 
keep  a  record  of  their  proceedings,  this  record  being  kept  on  file 
in  some  safe  place  for  future  reference.  Courts  not  of  record, 
on  the  other  hand,  have  no  permanent  record  of  their  pro- 
ceedings. 

Civil  and  Criminal  Courts.  —  Courts  are  either  Civil  or  Crim- 
inal. Civil  courts  hear  cases  in  which  the  rights  and  liabilities 
of  individuals  towards  each  other  are  in  dispute.  A  civil  action 
is  one  which  seeks  the  establishment,  recovery,  or  redress  of 
private  rights,  while  a  criminal  action  has  for  its  purpose  the 
protection  of  the  community  against  those  whose  acts  would 
endanger  it.  Criminal  courts  are  those  which  administer  criminal 
law  and  hear  and  determine  criminal  actions. 

Common  Law  and  Equity  Courts.  —  Civil  Courts  may  be 
either  Common  Law  Courts  or  Equity  Courts.  The  distinction 
between  the  common  law  court  and  the  equity  or  chancery  court 


356  COURTS  AND  THEIR  JURISDICTION 

was  in  former  times  well  defmed,  a  different  set  of  judges  pre- 
siding over,  and  an  entirely  different  system  prevailing  in,  each 
court.  But  the  line  of  distinction  is  in  most  jurisdictions  less 
pronounced  now  than  formerly,  and  in  many  of  the  states  the 
same  judge  presides  in  both  a  common  law  and  an  equity  court ; 
at  one  term  of  court  hearing  common  law  cases  and  at  another 
equity  cases. 

General  and  Special  Jurisdiction.  —  Courts  of  general  juris- 
diction are  those  in  which  it  is  assumed,  unless  the  contrary  is 
shown,  that  they  have  jurisdiction  to  hear  the  cases  before  them. 
In  such  a  court  the  fact  that  it  has  jurisdiction  does  not  have  to 
be  expressly  pleaded  or  proved,  while  in  the  case  of  a  court  of 
inferior  or  special  jurisdiction,  the  jurisdiction  of  the  court  over 
the  case  in  question  is  not  presumed,  but  must  be  especially  set 
out  in  the  pleadings. 

Federal  Courts.  —  The  courts  of  the  United  States  are  called 
Federal  Courts  and  are  empowered  to  hear  cases  arising  under  the 
United  States  Constitution,  laws,  and  treaties.  The  Constitution 
provides  that  the  judicial  power  of  the  United  States  shall  be 
vested  in  one  Supreme  Court  and  in  such  inferior  courts  as 
Congress  may  from  time  to  time  establish.  In  pursuance  of 
this  authority.  Congress  has  established,  in  addition  to  the  Su- 
preme Court,  inferior  courts  which  are  known  as  the  Circuit 
Court  of  Appeals,  the  District  Court,  and  others. 

The  Federal  courts  have  jurisdiction  only  in  those  cases  in 
which  it  is  expressly  conferred  upon  them  by  the  Constitution, 
and  by  Congress  under  the  power  granted  to  it  by  the  Constitu- 
tion. This  jurisdiction  extends  to  all  cases  arising  under  the 
United  States  Constitution,  the  laws  of  the  United  States  and 
treaties  made  under  their  authority,  and  all  cases  affecting  am- 
bassadors, public  ministers,  and  consuls;  to  all  cases  of  admi- 
ralty and  marine  law,  which  includes  all  things  done  upon  and 
relating  to  the  seas  and  all  transactions  in  connection  with  com- 
merce and  navigation  and  to  damages  for  injuries  upon  the  high 
seas  and  the  navigable  lakes  and  rivers  of  the  United  States. 
They  also  have  jurisdiction  of  controversies  in  which  the  United 
States  is  a  party,  and  of  cases  between  two  or  more  states, 
between  a  state  and  citizens  of  another  state,  between  citizens 


FEDERAL  COURTS  357 

of  different  states,  between  citizens  of  the  safne  state  claiming 
land  under  the  grant  of  a  different  state,  and  between  a  state  or 
its  citizens  and  foreign  states,  citizens,  or  subjects. 

Supreme  Court.  —  The  Supreme  Court  consists  of  the  chief 
justice  and  eight  associate  justices. 

This  court  has  both  original  and  appellate  jurisdiction,  its 
original  jurisdiction  extending  over  all  proceedings  brought 
against  ambassadors,  public  ministers,  and  their  families,  and 
over  all  controversies  of  a  civil  nature  in  which  a  state  is  a  party. 

It  has  appellate  jurisdiction  to  hear  appeals  from  the  circuit 
court  of  appeals  and  the  district  court. 

Circuit  Court  of  Appeals.  —  This  is  a  court  of  intermediate 
appeal  between  the  District  Court  and  the  Supreme  Court.  It 
has  appellate  jurisdiction  by  appeal  or  writ  of  error  to  review 
final  decisions  in  the  District  Courts,  except  in  a  few  cases  in 
which  appeals  may  be  taken  from  the  district  court  direct  to 
the  Supreme  Court.  In  many  cases  the  decision  of  the  Circuit 
Court  of  Appeals  is  final.  The  United  States  is  divided  into  nine 
circuits,  in  each  of  which  there  is  a  Circuit  Court  of  Appeals,  to 
which  is  assigned  one  of  the  Justices  of  the  Supreme  Court,  who 
with  the  circuit  or  district  judges  constitutes  the  Court. 

District  Court.  —  This  is  the  federal  court  of  original,  general 
jurisdiction.  Part  of  its  jurisdiction  was  formerly  exercised  by 
the  Circuit  Courts,  which  were  abolished  in  191 1  and  their 
jurisdiction  transferred  to  the  District  Courts.  There  are 
numerous  districts  in  the  United  States,  each  state  having  at 
least  one  and  some  states  having  four.  A  District  Court  is 
estabHshed  in  each  district,  presided  over  by  a  district  judge. 

The  district  courts  have  original  jurisdiction  of  all  civil  suits 
brought  by  the  United  States;  and  of  suits  which  arise  under  the 
Constitution,  laws  or  treaties  of  the  United  States,  or  between 
citizens  of  different  states,  or  a  citizen  of  a  state  and  a  foreign 
country.  Also  of  all  crimes  and  offenses  cognizable  under  the 
authority  of  the  United  States;  of  civil  cases  of  admiralty  and 
maritime  jurisdiction;  of  cases  arising  under  the  revenue,  postal, 
patent,  copyright,  trade-mark,  and  bankruptcy  laws;  and  many 
other  cases.  Actions  involving  federal  questions,  or  between 
citizens  of  different  states,  which  have  been  commenced  in  a  state 


358  COURTS  AND  THEIR  JURISDICTION 

court  may  be  removed  to  the  District  Court  under  certain  cir- 
cumstances and  by  proper  procedure. 

Other  Federal  Courts.  —  Congress  has  also  established  a 
Court  of  Claims  to  hear  and  determine  claims  against  the  United 
States;  a  Court  of  Customs  Appeals,  to  hear  certain  matters 
arising  under  the  revenue  laws  imposing  duties  on  imports;  and, 
in  certain  foreign  countries,  Consular  Courts,  at  which  American 
citizens  may  have  their  cases  heard,  in  order  to  be  relieved  of  the 
uncertain  and  sometimes  barbarous  laws  of  non-christian 
countries. 

State  Courts.  —  While  the  federal  or  United  States  courts 
above  enumerated  deal  only  with  certain  specific  cases  over 
which  they  are  given  jurisdiction  by  the  Constitution,  the  great 
mass  of  questions  not  specifically  placed  within  the  jurisdiction 
of  these  federal  courts  is  within  the  jurisdiction  of  the  state  courts. 

Justice  Court.  —  The  systems  of  courts  in  the  dififerent  states 
differ  somewhat,  but  in  the  more  important  features  are  essen- 
tially the  same.  The  lowest  court  is  the  Justice  Court,  presided 
over  by  the  justice  of  the  peace.  This  court  is  called  by  various 
other  names  in  different  states,  such  as  District  Court,  etc.  It  is 
a  court  not  of  record,  and  has  original  jurisdiction  only.  It  hears 
both  civil  and  criminal  cases  and  is  of  Hmited  or  special  juris- 
diction. 

In  the  larger  cities  there  are  two  modifications  of  this  court, 
one  branch  hearing  civil  cases  and  being  known  as  the  Munici- 
pal or  City  Court,  and  the  other  branch  dealing  with  the  criminal 
cases  and  known  as  the  Pohce  or  Magistrate's  Court. 

The  jurisdiction  of  the  justice  court  is  over  the  minor  or  more 
trivial  cases,  and  includes  the  punishment  of  petty  offenses 
which  it  is  not  thought  necessary  to  bring  before  the  higher 
courts.  In  civil  cases  it  has  jurisdiction  when  the  amount  in- 
volved does  not  exceed  a  sum  fixed  by  statute.  It  has  no  juris- 
diction when  the  title  to  real  property  is  involved.  In  its  criminal 
branch  it  has  exclusive  jurisdiction  of  certain  prescribed  misde- 
meanors, such  as  petit  larceny,  assault  in  the  third  degree, 
malicious  mischief,  etc. 

By  way  of  definition  ct  the  term  '^ misdemeanor"  it  may  be 
said  that  crimes  are  classified  as  felonies  and  misdemeanors.    A 


STATE  COURTS  359 

felony  is-  a  crime  punishable  by  either  death  or  imprisonment  in 
a  state's  prison.    All  other  crimes  are  misdemeanors. 

County  Court.  —  In  most  of  the  states  the  court  next  in  impor- 
tance is  a  county  court  of  special  or  limited  jurisdiction,  confined 
exclusively  to  those  cases  in  which  jurisdiction  is  expressly  con- 
ferred on  it.  In  many  states  it  is  called  the  Probate  Court,  or 
Orphans'  Court,  and  has  to  deal  with  the  settlement  of  the  estates 
of  deceased  persons,  the  probating  of  wills,  and,  the  protection  of 
minor  children.  In  some  states  it  has  jurisdiction  also  of  certain 
civil  and  criminal  cases  arising  within  the  county.  In  a  few 
states  there  are  two  courts  for  each  county,  one  held  by  the 
county  judge  for  civil  and  criminal  cases,  and  the  other  by  the 
surrogate  for  the  work  of  a  probate  court. 

Circuit  Court  or  District  Court.  —  In  each  state  there  is  a 
court  of  original  and  general  jurisdiction,  which  is  called  in  some 
states  the  Circuit  Court,  in  others  the  District  Court,  Superior 
Court,  or  the  Supreme  Court.  This  is  a  court  of  record  and  has 
unlimited  jurisdiction,  both  in  law  and  equity,  regardless  of  the 
amount  involved  or  the  nature  of  the  controversy,  provided  it  is 
not  a  case  in  which  the  federal  courts,  or  minor  state  courts,  have 
exclusive  jurisdiction.  In  some  cases  the  equity  powers  of  the 
court  are  exercised  by  a  separate  tribunal,  called  Chancery,  but 
in  most  states  law  and  equity  are  administered  by  the  same  court 
and  its  judges.  There  usually  is  a  separate  circuit  or  district 
court  for  each  county  or  other  judicial  district  in  the  state. 

Courts  of  Intermediate  Appeal.  —  In  some  of  the  states 
appeals  run  from  the  circuit  or  district  court  to  a  court  of  in- 
termediate appeal,  called  the  Appellate  Division  or  a  similar 
name,  whose  decision  is  final  in  certain  cases.  The  purpose  of  the 
courts  is  to  dispose  of  some  of  the  many  appeals  which  otherwise 
would  seriously  interfere  with  the  work  of  the  court  of  last  resort. 

Supreme  Court.  —  The  court  of  last  resort  in  a  state  is  usually 
called  the  Supreme  Court,  but  in  some  states  is  called  the  Court 
of  Appeals.  This  court  has  exclusively  appellate  jurisdiction. 
It  never  hears  the  evidence  in  a  case,  which  is  presented  to  the 
court  in  the  form  of  a  printed  record  of  the  proceedings  in  the 
lower  court,  and  it  decides  questions  of  law  as  to  which  its  deci- 
sion is  final. 


36o  COURTS  AND  THEIR  JURISDICTION     • 

Court  of  Claims.  —  The  state  is  a  sovereign  body  and  cannot 
be  sued  without  its  permission.  There  are  many  claims  against 
the  state  which  should  be  determined  by  some  tribunal,  and  to 
meet  the  necessity  most  states  have  established  Courts  of  Claims, 
which  have  exchisive  jurisdiction  to  hear  and  determine  such 
claims. 

Reference.  —  A  Referee  is  a  person  appointed  by  the  court  to 
hear  the  evidence  in  a  case  and  to  report  thereon  to  the  court. 
It  is  customary  for  the  court  to  grant  a  reference  when  the  case 
requires  the  examination  of  a  long  account.  In  some  other 
cases  a  reference  may  be  had  either  upon  motion  of  the  parties 
or  in  the  discretion  of  the  judge. 

A  case  involving  a  long  account  is  tried  before  a  referee 
because  of  the  difficulty  the  jurors  would  have  in  carrying  in 
their  minds  the  numerous  items  involved  therein  and  the  great 
delay  to  which  the  court  would  be  subjected  on  account  of  the 
expenditure  of  time  required  to  hear  cases  of  this  character.  A 
referee  hears  the  case  in  the  same  manner  as  a  judge,  and  has 
the  same  power  to  preserve  order  and  grant  adjournments. 


QUESTIONS 

1.  For  what  purpose  are  courts  established? 

2.  What  is  the  jurisdiction  of  a  court? 

3.  What  is  the  effect  of  a  decision  of  a  court  not  having  jurisdiction  of 
the  question? 

4.  Name  and  define  the  two  different  classes  of  jurisdiction. 

5.  (a)  What  is  a  court  of  original  jurisdiction?    (h)   Of  appellate  juris- 
diction? 

6.  Define  courts  of  record ;  courts  not  of  record. 

7.  Define  civil  and  criminal  courts;  common  law  and  equity. 

8.  Distinguish  between  the  courts  of  general  jurisdiction  and  those  of 
special  jurisdiction. 

9.  How  are  the  courts  of  the  United  States  established,  and  over  what 
question  J  have  they  jurisdiction? 

10.  Name  the  different  United  States  courts,  and  describe  each. 

11.  (a)  What  is  the  lowest  court  in  your  state?  (b)  What  are  the 
limits  of  its  jurisdiction,  both  civil  and  criminal?  (c)  By  whom  is  it  con- 
ducted? 

12.  (a)  Is  there  a  county  court  in  your  state?  {b)  What  is  its  name  and 
its  jurisdiction? 


PLEADING  AND  PRACTICE  361 

13.  (a)  What  court  in  your  state  has  jurisdiction  over  the  probate  of 
wills?    (b)  What  other  jurisdiction,  if  any,  has  it? 

14.  (a)  What  is  the  lowest  court  of  general  jurisdiction  in  your  state? 
(b)  Are  there  any  classes  of  cases  which  it  cannot  determine? 

15.  What  courts  in  your  state  hear  equity  cases? 

16.  What  court  in  your  state,  if  any,  has  intermediate  appellate  juris- 
diction? 

17.  What  is  the  highest  court  in  your  state  and  what  is  its  jurisdiction? 

18.  (a)  Is  there  a  court  of  claims  in  your  state?  {b)  Why  is  such  a  court 
established?    (c)  Over  what  questions  does  it  have  jurisdiction? 

PLEADING  AND  PRACTICE 

We  have  learned  that  a  system  of  courts  is  established  in 
each  state  as  well  as  in  the  United  States.  To  enable  the  courts 
to  conduct  their  business  in  an  orderly  manner,  Certain  rules  of 
practice  are  prescribed  which  must  be  observed  by  those  desir- 
ing relief  in  these  courts. 

Action.  —  When  a  person  desires  the  relief  afforded  by  the 
courts,  he  institutes  an  action  or  suit.  An  action  is  defined  as 
the  legal  and  formal  demand  of  one's  rights  made  upon  another 
person  or  party  and  insisted  upon  in  a  court  of  justice. 

Parties.  —  In  an  action  at  law  it  is  necessary  that  there  be 
two  or  more  parties.  The  party  who  brings  the  action  is  known 
as  the  plaintiff,  and  the  one  against  whom  it  is  brought,  as  the 
defendant.  In  a  criminal  action  the  plaintiff  is  the  state  or 
the  people  of  the  state,  and  the  defendant  is  the  one  accused 
of  the  crime.  The  same  person  cannot  be  both  plaintiff  and 
defendant.  A  party  in  all  civil  cases  must  be  competent  to 
contract;  but  when  incompetent,  as  in  the  case  of  an  infant  or 
lunatic,  he  may  bring  suit  through  a  person  appointed  for  that 
purpose  and  known  as  a  guardian. 

Summons.  —  An  action  is  commenced  by  the  service  of  a 
notice  upon  the  defendant,  this  notice  being  called  a  summons. 
The  summons  is  in  some  jurisdictions  issued  by  the  judge  or 
clerk  of  the  court,  while  in  other  jurisdictions  it  may  be  issued 
by  the  attorney  for  the  plaintiff. 

This  summons  must  be  served  personally  upon  the  defendant, 
either  by  a  sheriff  or  a  constable,  or  by  a  person  of  suitable  age. 
The  laws  expressly  provide  in  a  few  cases  that  the  summons 


362  COURTS  AND  THEIR  JURISDICTION 

may  be  served  upon  the  defendant  by  advertising  it  in  a  news- 
paper, but  this  is  only  in  case  the  defendant  is  not  within  the 
state,  or  if  within  the  state  he  cannot  be  located. 

Pleadings.  —  After  an  action  or  suit  has  been  commenced  by 
the  service  of  a  summons,  the  parties  must  serve  their  pleadings 
within  a  certain  prescribed  time.  These  pleadings  are  the 
formal  allegations  of  the  parties  by  which  both  plaintiff  and 
defendant  present  to  the  court  and  to  each  other  their  respective 
versions  of  the  question  in  dispute. 

Complaint.  —  The  complaint,  which  is  the  first  pleading  in  a 
case,  and  is  in  some  states  called  the  petition  or  declaration, 
consists  of  a  statement  of  the  cause  of  action  which  the  plaintiff 
sets  forth  as  his  reason  for  seeking  the  aid  of  the  court  against 
the  defendant.  Under  the  old  common  law  the  forms  of  plead- 
ings* were  very  technical,  but  under  the  modern  form  of  proce- 
dure they  are  required  only  to  set  forth  the  facts  in  a  clear  and 
concise  manner.  The  complaint  is  commonly  served  with  the 
summons,  but  may  be  served  later.  After  the  complaint  has 
been  served  upon  the  defendant  or  filed  with  the  court,  as  the 
rules  of  the  particular  court  may  require,  it  is  then  necessary 
for  the  defendant  within  a  certain  number  of  days  (usually 
twenty)  to  file  or  serve  a  statement  of  the  reasons  why  he  should 
not  comply  with  the  demands  of  the  plaintiff.  If  such  a  state- 
ment is  not  filed,  the  plaintiff  is  given  judgment  against  the 
defendant  by  default.  The  pleading  which  is  filed  by  the  de- 
fendant may  be  either  an  answer  or  a  demurrer. 

Answer.  —  The  answer,  or  plea  as  it  is  sometimes  called,  is  a 
statement  in  concise  form  of  the  defendant's  defense  to  the 
matters  set  up  in  the  complaint.  The  answer  may  deny  the 
claim  of  the  plaintiff,  or  it  may  admit  it  and  set  up  other  facts 
by  way  of  counterclaim  or  set-off. 

To  illustrate,  the  plaintiff  may  sue  for  $ioo,  which  he  alleges 
in  his  complaint  the  defendant  owes  him  for  the  purchase  price 
of  a  boat  sold  by  plaintiff  to  defendant.  The  defendant  in  his 
answer  may  allege  that  he  did  not  purchase  the  boat,  but 
merely  took  it  to  keep  for  its  use,  and  this  would  be  a  denial. 
Again,  he  may  admit  purchasing  the  boat  for  $ioo,  but  allege 
that  he  worked  for  defendant  three  months  at  $50  per  month, 


PLEADING  AND  PRACTICE  363 

and  that  his  wages  had  not  been  paid,  and  ask  that  this  be  an 
offset  against  the  price  of  the  boat,  and  that  he,  the  defendant, 
be  given  a  judgment  for  the  balance  of  $50.  This  defense  con- 
stitutes a  counterclaim  or  set-off. 

Reply.  —  When  a  counterclaim  is  alleged,  new  facts  are 
brought  up  and  it  is  necessary  for  the  plaintiff,  if  he  wishes 
to  deny  them,  to  make  a  reply,  or  replication,  which  is  really  the 
plaintiff's  reply  or  answer  to  the  new  facts  set  forth  by  the 
defendant. 

Demurrer.  —  The  defendant  may  consider  that  the  facts  set 
up  in  the  plaintiff's  complaint,  even  if  true,  do  not  constitute  a 
sufficient  case  in  law  against  him,  and  for  this  reason  it  does  not 
require  that  a  defense  be  interposed,  therefore  he  demurs  to  the 
plaintiff's  complaint.  By  demurring  he  in  effect  says,  '^Admitting 
that  all  the  plaintiff  sets  forth  in  his  complaint  is  true,  still  he  is 
not  entitled  to  recover."  The  question  on  the  demurrer  must  be 
argued  before  the  judge,  and  if  the  demurrer  is  sustained,  the 
plaintiff  must  correct  or  amend  his  complaint  or  he  fails  in  his 
action.  If  the  demurrer  is  overruled,  the  defendant  must  answer 
or  the  case  will  go  against  him.  A  demurrer  may  also  be  inter- 
posed to  an  answer  or  a  reply  in  the  same  manner  as  to  the 
complaint. 

Trial.  —  After  the  pleadings  are  served  the  case  comes  to 
trial.  A  trial  is  held  before  the  court,  consisting  of  the  judge 
alone  in  some  cases  and  in  others  of  a  judge  and  a  jury.  A 
jury  is  a  body  of  men,  usually  twelve,  who  are  brought  together 
to  hear  a  case  and  sworn  to  decide  the  same  according  to  the 
evidence  brought  before  them 

Questions  of  Law  or  of  Fact.  —  Questions  which  give  rise  to  a 
trial  may  be  questions  of  law  or  questions  of  fact.  In  the  former 
the  facts  of  the  case  are  admitted,  and  the  question  to  be  decided 
is  the  application  of  the  law  to  these  facts.  This  is  a  question 
for  the  court  and  is  tried  without  a  jury.  A  question  of  fact 
arises  when  the  testimony  of  the  witnesses  differs  and  the  true 
state  of  facts  remains  to  be  determined.  Questions  of  fact  are 
generally  tried  before  a  jury.  Every  criminal  case  may  be  tried 
before  a  jury  if  the  defendant  demands  a  jury  trial.  As  a 
rule,  an  equity  case  is  tried  before  the  judge  without  a  jury. 


364  COURTS  AND  THEIR  JURISDICTION 

All  cases  involving  simply  a  question  of  law  are  tried  before  a 
judge  without  a  jury.  It  may  be  said  that  the  law  is  to  be 
decided  by  the  judge,  and  the  facts  by  the  jury.  The  jurors 
are.  sworn  to  determine  the  case  according  to  the  evidence. 

Evidence.  —  The  evidence  consists  of  the  testimony  of  per- 
sons who  know  something  about  the  facts  and  are  sworn  to 
tell  the  truth.  These  persons  are  known  as  witnesses.  Written 
documents  and  papers  pertaining  to  the  case  are  also  admitted 
as  evidence. 

Subpoena.  —  In  order  to  procure  the  attendance  of  the  wit- 
nesses at  the  trial  of  a  case  the  court  issues  an  order,  called  a 
subpoena,  commanding  them  to  appear  at  a  certain  time  to  give 
evidence  in  the  case,  and  in  default  of  their  appearance  they  are 
subject  to  a  fine  for  contempt  of  court.  Refusal  to  testify  when 
called  as  a  witness  is  also  contempt  of  court. 

Deposition.  —  When  a  necessary  witness  is  outside  of  the 
state,  or,  in  the  justice  court,  outside  of  the  county  or  an  adjoin- 
ing county,  it  is  not  within  the  power  of  the  court  to  compel 
his  attendance,  therefore  statutes  have  been  passed  allowing  his 
testimony  to  be  taken  in  a  certain  prescribed  way  before  a 
notary  public  or  other  officer,  who  reduces  the  testimony  to 
writing  and  returns  it  to  the  court.  The  opposing  party  must 
have  notice  of  the  time  and  place  of  the  taking  of  the  deposi- 
tion and  also  an  opportunity  to  question  the  witness. 

Lawyers.  —  The  case  for  both  the  plaintiff  and  the  defendant 
is  conducted  by  officers  of  the  court  known  as  lawyers.  The 
lawyer  prepares  the  pleadings  for  his  side  of  the  case,  presents 
the  case  to  the  court,  and  questions  the  witnesses.  In  some  courts 
a  party  may  conduct  his  own  case. 

Verdict.  —  After  the  jury  has  heard  the  witnesses  for  plaintiff 
and  defendant,  it  weighs  the  evidence  on  both  sides  of  the  ques- 
tion and  arrives  at  a  decision  as  to  the  party  in  the  right.  This 
decision  is  called  the  verdict.  In  order  to  render  a  verdict  the 
jurors  must  all  agree.  If,  after  a  reasonable  time,  they  have 
failed  to  agree,  they  are  dismissed,  and  a  new  trial  is  held  before 
another  jury. 

Judgment.  —  The  verdict  of  a  jury  is  but  a  determination  of 
the  facts  of  a  case.    It  is  for  the  judge  to  give  the  judgment, 


PLEADING  AND  PRACTICE  365 

which  is  the  official  decision  of  the  court  upon  the  respective 
rights  and  claims  of  the  parties  to  the  action.  Thus  in  a  suit  for 
damages  against  a  taxicab  company  for  a  collision  with  plaintiff's 
automobile,  the  jury  might  find  that  the  plaintiff  ought  to  recover 
$ioo"from  the  defendant,  and  bring  in  its  verdict  to  that  effect. 
Upon  this  verdict  the  judge  decrees  that  tjie  defendant  shall 
pay  this  amount  to  the  plaintiff  and  so  gives  the  judgment  of 
the  court  to  the  plaintiff  for  $100  and  costs.  The  costs  are 
an  allowance  given  to  the  successful  party  to  compensate  him 
for  his  expenses  in  conducting  the  case.  In  a  criminal  matter 
the  jury  finds  the  defendant  guilty  or  not  guilty  and  the  judge 
pronounces  the  penalty  or  punishment,  or  discharges  the  de- 
fendant. 

Execution.  —  After  the  judgment  of  the  court  has  been  ren- 
dered, the  party  against  whom  the  damages  are  adjudged  may 
not  voluntarily  pay  them.  In  such  an  event,  the  law  provides 
a  method  of  procedure  called  an  execution,  which  is  a  command 
issued  by  the  court  to  one  of  its  officers,  either  a  sheriff,  consta- 
ble, or  marshal,  authorizing  and  requiring  him  to  collect  the 
amount  named  as  damages,  and  if  not  paid,  to  take  certain  prop- 
erty of  the  person  against  whom  the  judgment  is  given,  sell  it, 
and  apply  the  proceeds  upon  the  judgment. 

Levy  and  Sale.  —  The  taking  of  the  property  under  the  au- 
thority of  the  execution  is  called  a  levy.  The  property,  after 
being  levied  upon,  is  advertised  by  the  officer  and  sold  at  public 
sale  to  the  highest  bidder. 

Exemption.  —  The  sheriff  or  officer  can  levy  upon  any  prop- 
erty owned  by  the  judgment  debtor  except  certain  articles  which 
he  is  allowed  by  law  to  claim  as  exempt  from  execution  and  sale. 
The  exemptions  differ  in  the  different  states  and  are  generally 
more  liberal  to  a  married  man  or  one  who  supports  a  family, 
than  to  a  single  man.  The  exemptions  ordinarily  consist  of 
clothing,  household  articles  of  a  certain  value,  etc. 

New  TriaL  —  After  the  judgment  has  been  given,  the  unsuc- 
cessful party  may  within  a  certain  time  move  for  a  new  trial, 
either  for  the  reason  that  he  has  discovered  some  new  evidence, 
or  because  of  some  error  of  the  judge  in  the  first  trial.  If  the 
judge  can  be  convinced  that,  during  the  trial,  he  has  made  a 


366  COURTS  AND  THEIR  JURISDICTION 

material  error  or  that  the  defeated  party  really  has  discovered 
new  evidence  that  is  material  to  his  case,  the  judge  may,  at  his 
discretion,  order  a  new  trial.  If  a  new  trial  is  denied,  the  de- 
feated party  has  no  recourse  but  to  pay  the  judgment  or  take 
an  appeal. 

Appeal.  —  The  party  dissatisfied  with  the  judgment  of  the 
trial  court  may  take  an  appeal  to  a  higher  court  by  fulfilling  cer- 
tain conditions,  which  usually  consist  in  giving  an  undertaking 
to  pay  the  costs  if  the  decision  of  the  trial  court  is  affirmed. 

The  appeal  is  generally  on  questions  of  law  alone,  the  deci- 
sion of  the  trial  court  on  questions  of  fact  being  final.  The 
appellate  court  hears  the  arguments  of  the  lawyers  on  each  side, 
and  it  may  then  affirm  the  decision  of  the  trial  court,  or  it  may 
reverse  it  and  send  the  case  back  for  a  new  trial. 

When  the  case  has  been  taken  to  the  highest  appellate  court 
to  which  a  case  of  its  kind  can  be  carried,  and  this  last  court 
affirms  the  judgment  of  the  trial  court,  the  case  is  finally  deter- 
mined. 

Supplementary  Proceedings.  —  In  case  the  sheriff  or  other 
officer  intrusted  with  the  execution  is  unable  to  collect  the  money 
or  find  property  sufficient  to  satisfy  it,  he  may  return  the  execu- 
tion with  his  certificate  that  it  is  unsatisfied.  The  party  who 
obtained  the  judgment,  and  who  is  called  the  judgment  creditor, 
may  then  apply  to  the  judge  for  an  order  to  examine  the  judg- 
ment debtor  in  reference  to  his  property.  This  order  of  the 
judge  requires  the  judgment  debtor  to  appear  before  a  referee 
appointed  by  the  court  and  answer  questions  which  may  be 
asked  him  in  reference  to  his  property.  The  referee  also  has 
power  to  subpoena  other  witnesses  and  to  adjourn  the  proceed- 
ings from  time  to  time.  When  the  examination  is  completed 
the  referee  reports  the  evidence  to  the  judge  who  appointed  him, 
and  if  it  is  found  that  the  judgment  debtor  has  any  property 
which  is  not  exempt,  he  is  ordered  to  turn  it  over  to  the  proper 
officer. 

Replevin.  —  This  is  an  action  brought  to  recover  the  posses- 
sion of  certain  articles  of  personal  property  which  have  been 
wrongfully  taken,  or,  if  rightfully  taken,  are  being  wrongfully 
withheld.    By  giving  a  bond,  the  plaintiff  can  have  the  property 


COURTS  AND  THEIR  JURISDICTION  367 

taken  from  the  defendant  and  held  in  the  custody  of  an  officer 
until  the  action  is  determined.  In  this  action  their  right  to  the 
possession  of  the  goods  is  the  question  in  dispute. 

Attachment.  —  In  certain  cases  the  court  will  issue  a  writ  of 
attachment,  which  is  an  order  to  the  sheriff  or  other  officers  to 
seize  certain  property  of  the  defendant  and  hold  it  as  security 
for  any  judgment  which  may  be  obtained.  This  writ  is  used 
principally  against  absconding,  concealed,  or  fraudulent  debtors, 
but  in  some  states  is  issued  as  a  matter  of  course  at  the  com- 
mencement of  every  action.  It  is  used  also  when  the  defendant 
does  not  reside  within  the  state,  but  the  goods  attached  are 
within  it.  In  such  a  case  the  court  gets  jurisdiction  of  the 
property,  which  it  may  dispose  of  to  satisfy  a  judgment  there- 
after obtained  in  the  action. 

Garnishment.  —  In  some  states  there  is  a  provision  in  the  law 
by  which  a  person  owing  money  to  the  defendant  may  be  brought 
into  the  suit  and  ordered  not  to  pay  the  money  over  to  the 
defendant,  and  he  may  also  be  ordered  to  pay  it  into  court.  This 
procedure  is  frequently  employed  when  the  third  party  owes 
wages  to  the  defendant,  as  by  garnishment  proceedings  he  will 
be  compelled  to  pay  over  a  part  of  the  wages  to  the  court,  or 
retain  it  to  apply  on  any  judgment  the  plaintiff  may  obtain. 

QUESTIONS 

1 .  (a)  Define  an  action,     (b)  Name  the  parties  in  an  action. 

2.  What  is  a  summons  and  how  must  it  be  served? 

3.  What  are  the  pleadings  in  an  action? 

4.  What  is  (a)  the  complaint?     {b)  the  reply?     (c)   a  demurrer? 

5.  If  the  demurrer  is  sustained,  what  effect  does  it  have  on  the  action? 

6.  Before  whom  is  (a)  a  question  of  law  tried?   (b)  a  question  of  fact? 

7.  Before  whom  is  (a)  a  criminal  case  tried?  (b)  an  equity  case? 

8.  What  is  (a)  a  subpoena?   (6)  a  deposition? 

9.  What  is  (a)  the  verdict  in  a  case?   (6)  the  judgment? 

10.  Define  execution,  levy,  and  sale. 

11.  When  and  how  may  a  new  trial  be  had? 

12.  What  is  an  appeal,  and  upon  what  questions  is  it  taken? 

13.  Describe  supplementary  proceedings. 

14.  What  is  a  replevin  action? 

15.  Define  (a)  attachment,  (b)  garnishment. 


TEST  CASE  PROBLEMS 

Give  the  decision  and  the  principle  or  principles  of  law  involved  in  each  case. 

1.  Duplex  Safety  Boiler  Co.  v.  Garden,  loi  N.  Y.  387.  —  The  plain- 
tiffs in  this  case  entered  into  a  contract  with  the  defendant  wherein  it  was 
agreed  that  they,  the  plaintiffs,  should  alter  boilers  belonging  to  the  defend- 
ant and  perform  all  the  work  connected  with  the  repair  of  these  boilers,  and 
complete  the  job  by  the  loth  of  May  following.  It  was  further  agreed  that 
the  work  should  be  done  in  such  a  manner  as  to  satisfy  the  defendant  that 
the  boilers  as  changed  were  a  success  and  that  they  would  not  leak  under  a 
pressure  of  steam.  The  work  was  done  and  the  boilers  were  turned  over  to 
the  defendant  within  the  stated  time.  They  were  accepted  and  used  by  the 
defendant.  Later,  however,  upon  being  requested  to  make  payment,  the 
defendant  said  the  boilers  were  not  satisfactory  and  refused  to  pay.  Experts 
were  called  in,  and  after  a  thorough  examination  by  them,  the  boilers  were 
pronounced  satisfactory  in  every  way. 

2.  Morton  v.  Steward,  5  Brad  well  (111.)  533,  was  an  action  on  a  note 
given  by  an  infant,  and  it  was  proved  that  the  consideration  was  necessaries 
furnished  the  infant.  The  amount  of  the  note  showed  that  an  excessive  price 
had  been  charged  for  the  necessaries. 

3.  In  Eaton  v.  Avery,  83  N.  Y.  31,  defendant  made  false  representa- 
tions to  a  mercantile  agency  as  to  the  financial  responsibility  of  his  firm, 
which  asked  for  credit  of  plaintiff.  Plaintiff  went  to  the  mercantile  agency 
and  obtained  the  information  given  by  the  defendant,  and  relying  on  this, 
he  delivered  goods  to  the  firm  on  credit.  This  action  was  brought  to  set 
aside  the  contract  of  sale  and  recover  the  goods. 

4.  In  Flanagan  v.  Kilcome,  58  N.  H.  443,  defendant  promised  to  pay 
plaintiff  a  certain  sum  if  he  would  drop  a  lawsuit  which  he  had  com- 
menced against  her.  This  was  done,  but  defendant  did  not  pay  the  agreed 
sum  and  suit  was  brought  to  recover  it. 

5.  In  Anderson  v.  May,  50  Minn.  280,  plaintiff  contracted  in  March  to 
raise  and  deliver  to  defendant  591  bushels  of  beans.  Plaintiff  delivered  only 
152  bushels  because  most  of  his  crop  was  destroyed  by  early  and  unusual 
frost.     Defendant  refused  to  accept  or  to  pay  for  only  152  bushels. 

6.  Wood  V.  Steele,  6  Wall.  (U.  S.)  80,  was  an  action  on  a  promissory  note 
dated  October  11,  1858,  and  made  by  Steele  and  Newson,  payable  to  their 
own  order  one  year  from  date.    It  was  indorsed  by  them  to  Wood,  the 

368 


TEST  CASE  PROBLEMS  369 

plaintiff.  " September "  had  been  struck  out  and  ''October"  put  in  as  the 
date.  The  change  was  made  after  Steele  had  signed  the  note  as  surety  and 
without  his  knowledge  or  consent. 

7.  Bird  V.  Munroe,  66  Maine  337,  was  a  case  in  which  a  verbal  contract 
was  made.  The  contract  belonged  to  the  class  required  by  the  Statute  of 
Frauds  to  be  in  writing.  It  was  broken,  and  the  parties  afterward  entered 
into  a  written  agreement  containing  the  terms  of  the  oral  contract.  After 
the  writing  was  signed,  an  action  was  brought  for  breach  of  the  contract 
which  occurred  before  the  written  agreement  was  executed. 

8.  In  Oddy  v.  James,  48  N.  Y.  685,  about  the  middle  of  March  the 
parties  entered  into  an  oral  agreement  by  which  the  defendant  employed 
plaintiff  to  superintend  his  cement  works  for  one  year  from  April  i  next. 
Plaintiff  worked  until  August  3,  when  defendant  discharged  him.  Plaintiff 
sued  and  defendant  set  up  that  the  agreement  was  void  under  the  Statute  of 
Frauds. 

9.  In  Owen  v.  Hall,  70  Md.  97,  at  the  maturity  of  a  joint  promissory 
note  a  joint  renewal  note  was  given  by  the  three  makers.  After  Hall  had 
signed  as  maker,  the  other  two  makers  added  the  words  "with  interest" 
to  the  note  without  Hall's  knowledge  or  consent. 

10.  White  V.  Corlies,  46  N.  Y.  467.  —  Corlies  got  an  estimate  for  fitting 
up  his  offices  from  White,  who  was  a  builder.  Then  Corlies  wrote  White  a 
letter  in  which  he  said:  "Upon  an  agreement  to  finish  fitting  up  of  offices  at 
57  Broadway  in  two  weeks  from  date,  you  can  commence  at  once."  White 
made  no  reply,  but  on  the  same  day  purchased  lumber  and  made  other 
preparations  to  begin  the  job.  On  the  following  day  he  received  a  note  from 
Corlies  in  which  Corlies  countermanded  his  earlier  letter.  White  brought 
suit  against  Corlies  for  damages. 

11.  Drake  v.  Seaman,  97  N.  Y.  230.  —  The  plaintiff  was  engaged  by  the 
defendant  to  act  as  salesman  for  a  period  of  three  years.  The  defendant  gave 
the  plaintiff  the  following  memorandum  of  the  contract:  "The  under- 
standing with  Mr.  Drake  is  as  follows:  $2000  for  the  first  year;  $2500  for 
the  second  year  sure,  and,  provided  the  increased  sales  will  warrant  it,  he  is 
to  have  $3000."  As  the  defendant  refused  to  carry  out  the  arrangement, 
the  plaintiff  sued  for  breach  of  contract.  Seaman's  defense  was  the  Statute 
of  Frauds. 

12.  Dixon  V.  Wilmington  Savings  &  Trust  Co.,  115  N.  C.  274;  20  S.  E. 
Rep.  464.  —  The  plaintiff  signed  a  paper,  which  was  a  mortgage  on  her  land, 
without  reading  it.  She  did  this  because  she  relied  on  Davis,  her  agent,  who 
told  her  that  the  paper  amounted  to  nothing.  The  mortgage  was  made  out 
to  the  defendant,  who  took  it  in  good  faith  and  paid  value  for  it.  The  money 


370  TEST  CASE  PROBLEMS 

was  obtained  by  the  agent  but  was  not  turned  over  to  the  plaintiff.  The 
plaintiff  brought  this  action  to  have  the  mortgage  canceled  on  the  ground 
of  mistake  and  fraud. 

13.  Lewis  V.  Jewell,  151  Mass.  345;  24  N.  E.  Rep.  52.  —  This  was  an 
action  based  on  fraudulent  representations  alleged  to  have  been  made  by 
the  defendant  in  selling  carpet.  The  carpet  was  represented  to  contain  900 
yards,  whereas  it  contained  only  595  yards.  The  carpet  at  the  time  of  the 
sale  covered  four  floors,  a  hall,  and  a  stairway  in  a  dwelling  house.  The 
yardage  of  the  carpet  was  an  element  in  fixing  its  value. 

14.  Moore  v.  Appleton,  26  Ala.  633.  —  Plaintiff  brought  an  action  to  be 
reimbursed  for  damages  which  he  had  been  obliged  to  pay  because  of  certain 
acts  performed  by  him  as  agent  for  the  defendant  in  dispossessing  a  third 
party  of  lands  claimed  by  the  defendant,  and  which  plaintiff  had  reason  to 
believe  belonged  to  defendant.  Is  the  plaintiff  entitled  to  recover,  and  if  so, 
on  what  ground? 

15.  Walker  v.  Osgood,  98  Mass.  348.  —  This  was  an  action  by  a  real 
estate  agent  for  commissions.  Defendant  had  employed  plaintiff  to  sell  or 
trade  his  farm  and  the  agent  effected  an  exchange  and  made  an  agreement 
with  the  third  party  that  he  was  to  receive  from  him  a  commission.  Should 
the  plaintiff  be  allowed  to  recover  his  commissions  from  the  defendant? 
What  would  be  his  rights  against  the  third  party? 

16.  New  York  Tel.  Co.  v.  Barnes,  85  N.  Y.  Supp.  327.  —  The  defendant 
made  Purdy  the  general  manager  of  his  drug  store.  An  agreement  pro- 
vided that  Purdy  should  buy  goods  for  the  store  only  for  cash  and  that  he 
should  not  run  up  any  account  for  any  goods  or  supplies  of  any  kind  what- 
ever. Purdy  made  a  contract  with  the  plaintiff  for  telephone  service. 
The  telephone  company  sued  the  defendant  on  this  contract  made  by  Purdy. 

17.  Power  V.  First  National  Bank,  6  Mont.  251;  12  Pac.  Rep.  597.  — 
This  action  was  brought  to  recover  the  amount  of  a  bill  of  exchange  which 
had  been  deposited  by  the  plaintiff  with  the  defendant  bank  for  collection. 
The  defendant,  in  the  usual  course  of  business,  sent  the  bill  of  exchange  to  its 
correspondent.  The  correspondent  collected  the  draft  but  negligently 
failed  to  remit  the  proceeds  and  it  subsequently  went  into  the  hands  of  a 
receiver. 

18.  Gaynor  v.  Jonas,  104  App.  Div.  (N.  Y.)  35.  —  The  plaintiff  made  a 
contract  with  the  defendant  whereby  the  defendant  agreed  to  employ  the 
plaintiff  for  three  months  at  $16  a  week.  After  one  month  the  plaintiff  was 
discharged  because  she  had  been  sick  and  away  from  business  for  one  and 
one  half  days.  She  sued  for  her  salary  for  the  balance  of  the  employment 
period,  less  what  she  had  actually  earned  during  that  time. 


TEST  CASE  PROBLEMS  371 

19.  In  Haynes  v.  Aldrich,  133  N.  Y.  287,  defendant  leased  certain 
premises  for  a  year,  the  term  expiring  May  i.  Before  the  expiration  of  the 
term,  defendant  informed  plaintiff  that  she  did  not  wish  to  renew  her  lease 
for  another  year.  May  i  was  a  holiday,  and  possession  was  retained  until 
May  4,  the  excuse  being  the  difficulty  to  get  trucks  to  move  defendant,  also 
that  on  the  third  of  May  one  of  the  boarders  was  ill.  On  the  afternoon  of 
the  fourth  of  May  the  keys  were  tendered  plaintiff  and  refused.  Under  these 
circumstances  what  are  the  landlord's  rights? 

20.  Kitsen  v.  Hildebrand,  9  B.  Monroe  (Ky.)  72.  —  In  this  tase  the 
defendant,  Hildebrand,  kept  a  boardmg  house  and  occasionally  entertained 
transients.  The  plaintiff  was  a  regular  boarder.  The  plaintiff's  trunk  was 
broken  into  and  a  large  sum  of  money  stolen.  This  action  was  brought  to 
hold  Hildebrand  liable  as  an  innkeeper. 

21.  Pullman  Palace  Car  Co.  v.  Smith,  73  111.  360.  —  Smith  purchased  a 
ticket  on  the  Palace  Car  Company's  car.  While  he  was  asleep  on  his  trip, 
his  money  was  taken  from  his  vest  pocket.  This  action  was  brought  against 
the  company  as  innkeepers. 

22.  Rockwell  V.  Proctor,  39  Ga.  105.  —  Defendant  was  an  innkeeper, 
and  plaintiff  went  to  his  hotel  and,  while  there,  gave  his  coat  to  a  negro  who 
was  in  charge  of  the  check  room.  The  coat  was  lost  and  this  action  was 
brought  to  recover  its  value. 

23.  Dexter  v.  Syracuse  Railroad  Co.,  42  N.  Y.  326.  —  Plaintiff  was  a 
passenger  on  the  defendant  road,  and  his  trunk  was  lost  while  being  trans- 
ported by  said  road.  The  trunk  contained,  besides  his  wearing  apparel, 
material  for  two  dresses  for  his  wife,  and  for  a  dress  for  the  landlady. 
This  action  was  brought  to  recover  for  the  entire  contents  of  the  trunk. 

24.  Russel  V.  Langstaffe,  2  Doug.  (Eng.)  514.  —  Langstaffe  indorsed 
his  name  upon  the  back  of  certain  checks,  blank  as  to  amount,  date,  and 
time  of  payment.  The  checks  were  filled  in  by  Galley,  the  person  to  whom 
Langstaffe  gave  them,  with  amounts,  dates,  and  time  of  payment  different 
from  those  authorized,  and  were  negotiated  to  Russel,  a  holder  in  due 
course.  Langstaffe  refused  to  pay  on  the  ground  that  the  instruments  had 
been  improperly  filled  out. 

25.  Shaw  V.  Smith,  150  Mass.  166.  —  Eugene  Bridgeman  made  an 
instrument  in  writing  July  19,  1873,  which  read  as  follows:  "For  value 
received,  I  promise  to  pay  F.  B.  Bridgeman's  estate  or  order  $126  on  demand 
with  interest  annually."  F.  B.  Bridgeman  died  and  the  plaintiff  in  this  case 
was  appointed  administrator  of  his  estate.  This  action  was  brought  to 
recover  on  the  instrument  as  a  negotiable  note.  Does  the  instrument  contain 
all  the  essentials  required  to  make  it  negotiable? 


372  TEST  CASE  PROBLEMS 

26.  Mathews  &  Co.  v.  Mattress  Co.,  87  Iowa,  246.  —  This  action  was 
brought  on  a  promissory  note  against  the  Dubuque  Mattress  Company  and 
John  Kapp.  The  note  read,  "We  promise  to  pay,"  and  was  signed,  "Du- 
buque Mattress  Company,  John  Kapp,  Pt."  It  was  shown  that  the  "Pt." 
was  an  abbreviation  used  for  president.  Was  Kapp  personally  liable  on  this 
instrument? 

27.  Simpson  v.  Turney,  5  Humph  (Tenn.)  419.  —  A  certain  bank  was 
the  holder  of  a  promissory  note  payable  at  said  bank,  made  by  James  H. 
Jenkins  and  Anthony  Debrell,  and  indorsed  as  follows:  "A.  Debrell,  S. 
Turney,  John  W.  Simpson."  Turney  lived  within  one  mile  of  the  bank.  The 
note  matured  on  February  ist  and  was  protested  on  that  day.  On  Feb- 
ruary 3d  notice  was  sent  to  Turney  from  the  bank.  Simpson,  the  next 
indorser  after  Turney,  had  been  notified  of  the  failure  of  the  maker  to  pay 
the  note  but  gave  no  notice  to  Turney,  the  prior  indorser.  Simpson,  after 
paying  the  note,  brought  action  against  Turney  to  recover  the  amount  paid. 

28.  Spalding  v.  Rosa,  71  N.  Y.  40;  27  Am.  Rep.  7. —  Rosa  had  made  a 
contract  with  Spalding,  who  was  the  proprietor  of  a  theater,  to  furnish  the 
"Wachtel  Opera  Troupe"  for  a  certain  number  of  performances.  Wachtel, 
from  whom  the  company  took  its  name,  was  well  known  and  was  the  chief 
attraction  and  inducement  for  Spalding  to  make  the  contract.  Wachtel 
became  ill  and  could  not  sing;  because  of  this  Rosa  did  not  carry  out  the 
contract.    Spalding  sued  for  damages  for  the  alleged  breach  of  contract. 

29.  Labaree  Co.  v.  Crossman,  100  App.  Div.  (N.  Y.)  499.  —  The 
defendant  sold  a  certain  cargo  of  coffee  to  the  plaintiff  to  be  delivered  in 
New  York  at  a  certain  time.  Because  the  cargo  came  from  an  infected  port, 
the  Board  of  Health  at  New  York  refused  to  allow  it  to  be  landed.  The 
plaintiff  sued  for  damages  for  nondelivery. 

30.  Equitable  Gas  Light  Co.  v.  Baltimore  Coal  Tar  &  Mfg.  Co.,  63 
Md.  285.  —  The  defendant  agreed  to  sell  to  the  plaintiff  all  the  coal  tar 
manufactured  by  it  during  a  certam  period.  The  defendant  refused  to  carry 
out  the  agreement  and  the  plaintiff  filed  a  bill  for  specific  performance.  It 
was  proved  on  the  trial  that  coal  tar  was  indispensable  to  the  plaintiff's 
business,  that  the  plaintiff  could  not  obtain  the  supply  from  any  other 
parties  in  Baltimore,  and  that  it  would  be  subjected  to  great  additional 
expense  in  trying  to  get  the  coal  tar  from  distant  cities, 

31.  Hammer  v:  Schoenfelder,  47  Wis.  455;  2  N.  W.  1129.  —  The  plain- 
tiff, who  was  a  butcher,  had  a  contract  with  the  defendant,  whereby  the 
defendant  was  to  furnish  him  with  whatever  ice  he  might  require  for  his  ice- 
box for  the  season.  The  defendant  had  supplied  the  plaintiff  with  ice  the 
previous  season  and  knew  for  what  purpose  the  plaintiff  needed  the  ice.    In 


TEST  CASE  PROBLEMS  373 

July  the  defendant  stopped  supplying  ice  and  refused  to  continue  the  con- 
tract. As  a  result  the  plaintiff  lost  a  considerable  quantity  of  fresh  meat  and 
suit  was  brought  for  the  value  of  the  meat  spoiled.  What  damages  was  the 
plaintiff  entitled  to? 

32.  Clark  V.  Marsiglia,  i  Denio  (N.  Y.)  317.  —  This  was  an  action  for 
work,  labor,  and  material.  The  defendant  had  given  to  the  plaintiff  a  num- 
ber of  paintings  to  be  cleaned  and  repaired  at  a  certain  specified  price. 
After  the  plaintiff  had  started  the  work,  the  defendant  directed  him  to  stop,  • 
but  the  plaintiff  insisted  on  going  on  and  over  the  defendant's  objection 
finished  the  job,  and  then  brought  action  to  recover  for  the  whole. 

33.  Terry  v.  Wheeler,  25  N.  Y.  520.  —  The  plaintiff's  assignor  had  paid 
the  defendant  for  a  quantity  of  lumber  which  was  in  the  defendant's  lumber- 
yard. The  lumber  had  been  selected,  set  aside,  and  paid  for;  and  the  bill 
of  sale  had  been  given.  On  the  bill  of  sale  there  was  indorsed  a  memorandum 
that  the  lumber  was  "to  be  delivered  to  the  cars  free  of  charge."  Before 
being  delivered  to  the  railroad  station,  the  lumber  was  destroyed  by  fire. 
The  plaintiff  sued  for  the  return  of  the  price. 

34.  Garr  Stock  Co.  v.  Halverson,  128  Iowa  603;  105  N.  W.  Rep.  108.  — 
In  this  case  the  salesman,  in  selling  a  second-hand  machine,  stated  that  it  was 
practically  as  good  as  new,  that  it  would  steam  well,  and  that  it  was  of  suffi- 
cient power  to  drive  the  defendant's  threshing  machine.  The  engine  turned 
out  to  be  defective  and  did  not  work  well.  When  sued  for  the  price,  the 
defendant  set  up  breach  of  warranty. 

35.  Draper  v.  Wood,  112  Mass.  315.  —  A  promissory  note  was  made  by 
George  A.  Wood  and  H.  S  Higgins  and  read,  "  For  value  received,  I  promise 
to  pay  L.  L.  Draper,  or  order,  $1000  on  demand,  with  interest."  Higgins 
refused  to  pay  the  instrument  on  the  ground  that  Wood,  without  Higgins's 
knowledge,  changed  "I"  to  "We"  and  added  the  words,  "at  12%."  It  was 
proved  that  Wood  made  the  changes  in  good  faith  but  without  consulting 
Higgins.    Draper  brings  this  action  against  both  Wood  and  Higgins. 

36.  Richardson  v.  Carpenter,  46  N.  Y.  660.  —  The  instrument  in  this 
case  was  in  part  as  follows:  "Please  pay  A  or  order  $500  for  value  received 
out  of  the  proceeds  of  the  claim  against  the  Peabody  Estate  now  in  your 
hands  for  collection  when  the  same  shall  have  been  collected  by  you."  Was 
this  a  negotiable  instrument?     Why? 

37.  West  River  Bank  v.  Taylor,  34  N,  Y.  128.  —  This  case  involved  a 
bill  of  exchange  containing  a  number  of  indorsements.  When  the  bill  was 
dishonored,  notice  was  sent  to  the  last  indorser,  who  in  turn  sent  notice  to 
the  preceding  indorser,  and  so  on  down  the  line.  Ultimately  the  holder 
sued  the  first  indorser  who  defended  on  the  ground  that  he  did  not  receive 


374  TEST  CASE  PROBLEMS 

notice  of  dishonor  from  the  holder,  although  of  course  he  had  received  notice 
from  his  indorsee. 

38.  Huber  v.  Manchester  Fire  Assurance  Co.,  92  Hun  (N.  Y.),  223.  — 
The  plaintiff  insured  the  furniture  in  her  house  for  $1500.  The  policy  con- 
tained a  provision  that  the  entire  policy  should  be  void  if  the  building 
described  was  or  became  vacant  or  unoccupied  and  so  remained  for  ten  days. 
On  the  24th  of  August,  the  plaintiff  went  away  on  a  visit,  intending  to  be 
away  five  or  six  weeks.  Before  she  left,  she  arranged  to  have  the  house 
papered  and  painted,  and  a  friend  of  hers  went  to  the  house  frequently  to 
see  how  things  were.  The  house  and  furniture  burned  on  September  i8th, 
and  the  plaintiff  brought  suit  on  her  policy. 

39.  Paul  V.  Armenia  Insurance  Co.,  91  Pa.  State  520.  —  Plaintiff  took 
out  insurance  with  the  defendant  company,  and  in  the  application  blank 
which  he  filled  out  one  of  the  questions  was,  ''What  is  the  distance,  occu- 
pation, and  material  of  all  buildings  within  150  feet?"  Paul  made  no  answer 
to  this  question  and  the  company  issued  the  policy  without  insisting 
upon  the  answer.    This  action  was  brought  to  recover  on  the  policy. 

40.  Babcock  v.  Montgomery  Insurance  Co.,  6  Barb.  (N.  Y.)  637.  — 
Plaintiff  had  his  property  insured  under  a  policy  which  provided  that  the 
insurer  would  be  liable  for  "fire  by  lightning."  It  was  proved  that  lightning 
struck  the  building  and  so  shattered  it  as  to  cause  a  heavy  loss.  No  ignition 
occurred.  This  action  was  brought  to  recover  on  the  policy. 

41.  Cushmari  v.  Life  Insurance  Co.,  63  N.  Y.  404.  —  The  insurance 
policy  in  this  case  states  that  the  representations  made  by  the  insured  in  his 
application  were  made  a  part  of  the  contract,  and  provided  that  if  they  were 
untrue  the  policy  would  be  void.  The  applicant  stated  that  he  had  never 
been  afflicted  with  a  certain  disease.  It  was  shown  that  he  had  twice  been 
ill  with  this  disease  before  the  policy  was  issued.  What  effect  did  this 
statement  have  upon  the  policy? 

42.  Day  V.  Elmore,  4  Wis.  190.  —  Basset  gave  his  promissory  note  to 
Day,  and  Elmore  signed  a  guaranty  reading  as  follows:  "I  guarantee  the 
collection  of  the  within  note  for  value  received."  The  note  was  not  paid  by 
Bassett  at  maturity  and  Day  took  no  proceeding  to  collect  it  for  over  two 
years  thereafter.  When  he  did  proceed  against  Bassett,  he  could  recover 
nothing  and  brought  suit  on  the  guaranty. 

43.  Sibley  v.  Stull,  15  N.  J.  Law  332.  —  Hood  made  his  bond  to  StuU  in 
the  sum  of  $1100  for  a  good  consideration.  Stull  assigned  the  bond  to  Sibley 
and  for  consideration  guaranteed  the  payment  of  all  sums  to  become  due  on 
the  bond,  when  they  became  due,  and  for  the  payment  thereof  by  the  maker 
of  the  bond.    Hood  did  not  pay,  and  Sibley  sued  Stull  on  his  guaranty  with- 


TEST  CASE  PROBLEMS  375 

out  giving  him  any  notice  of  nonpayment,  or  demanding  payment  from 
Hood.     Can  Sibley  recover? 

44.  Lindsey  v.  Stranahan,  129  Pa.  State  635.  —  Stranahan  had  carried 
on  business  alone  prior  to  1876,  when  he  sold  a  half  interest  in  his  business 
to  J.  K.  Lindsey.  After  the  new  firm  was  formed,  entire  management  and 
control  of  the  business  was  left  to  Lindsey.  When  settlement  by  Stranahan 
and  Lindsey  was  made,  Lindsey  claimed  compensation  for  managing  the 
business.    No  express  agreement  was  made  regarding  this  matter. 

45.  Drake  v.  Thyng,  37  Ark.  228.  —  Drake  and  Thyng  were  partners 
in  the  brickmaking  business.  While  Drake  was  away,  Thyng  sold  the  stock 
and  plant  to  a  third  party  for  an  inadequate  sum.  Drake  brought  this  action 
to  set  aside  the  sale. 

46.  Burchinell  v.  Koon,  8  Colo.  App.  463;  46  Pac.  Rep.  932.  —  In  this 
case,  the  surviving  member  of  a  partnership  obtained  a  loan,  to  secure  which 
he  gave  a  mortgage  on  firm  property.  The  proceeds  of  the  loan  were  used  to 
pay  firm  debts.  Did  the  surviving  partner  have  power  to  give  this  mort- 
gage? 

47.  Foley  V.  Manufacturers  &  Builders  Fire  Ins.  Co.,  152  N.  Y.  131.  — 
In  this  case  the  question  arose  as  to  whether  the  plaintiffs  had  an  insurable 
interest  in  certain  buildings  being  erected  on  land  owned  by  them.  At  the 
time  of  the  fire  the  buildings  were  incomplete;  they  were  being  erected  under 
a  contract  binding  the  contractors  to  furnish  the  materials  and  complete  the 
buildings  for  a  sum  to  be  paid  on  their  completion. 

48.  Getchell  ?;.  Biddeford  Savings  Bank,  94  Maine  452;  47  Atl.  Rep. 
895. —  A  man  deposited  his  own  money  in  a  savings  bank  in  his  wife's 
name,  and  never  delivered  the  bankbook  to  her.  There  was  no  evidence 
that  the  wife  ever  saw  the  bankbook  or  knew  of  the  deposits.  To  whom 
did  the  money  belong? 

49.  Dorsey  v.  Moore,  100  N.  C.  41.  —  Defendant  was  tenant  for  her  life 
of  a  tract  of  land  and  plaintiff  was  the  remainderman.  Defendant  sold  stand- 
ing timber  to  Bennett  and  permitted  him  to  cut  and  remove  it.  Plaintiff 
sued  for  damage  for  waste. 

50.  Kane  v.  Cortesy,  100  N.  Y.  132.  —  The  plaintiff  was  the  owner  of  a 
mortgage  which  was  guaranteed  by  the  defendant.  When  the  time  for  the 
payment  of  the  mortgage  fell  due,  the  plaintiff  granted  an  extension  of  time 
to  the  mortgagor  and  the  latter  gave  to  the  plaintiff  a  chattel  mortgage  on 
certain  personal  property  as  additional  security.  When  the  defendant  was 
sued  on  the  guaranty  he  claimed  that  the  extension  of  time  for  paying  the 
mortgage  released  him  from  his  obligation  under  the  guaranty. 


IMPORTANT  STATUTES 

Interstate  Commerce.  —  The  Constitution  of  the  United  States  declares 
that  the  Congress  shall  have  power  "to  regulate  commerce  with  foreign 
nations,  and  among  the  several  States."  It  is  evidently  for  the  benefit  of 
the  country  as  a  whole  that  commerce  between  the  states,  called  interstate 
commerce,  should  be  regulated  by  the  federal  government,  rather  than  be 
subjected  to  varying  and  inconsistent  regulation  by  the  different  states.  In 
accordance  with  the  power  granted  by  the  Constitution,  Congress  has 
adopted  several  statutes  which  have  a  direct  bearing  on  commercial  life 
because  of  their  regulation  of  interstate  commerce. 

Interstate  Commerce  Act.  —  The  most  important  of  these  regulatory 
statutes  is  the  Interstate  Commerce  Act.  By  this  Act  was  created  the  Inter- 
state Commerce  Commission,  now  composed  of  eleven  commissioners  sitting 
at  Washington,  D.  C.  This  Commission  is  given  wide  powers  and  is 
charged  with  the  execution  of  the  provisions  of  the  act. 

The  act,  as  amended  at  various  dates,  applies  to  common  carriers  en- 
gaged in  the  transportation  of  passengers  or  property  from  one  state  to 
another  or  to  foreign  countries,  including  pipe  lines,  telephone,  telegraph 
and  cable  companies,  railroads,  express  and  sleeping  car  companies,  etc. 

The  service  and  charges  of  common  carriers  must  be  just  and  reasonable 
under  the  circumstances.  There  can  be  no  greater  charge  for  a  shorter  than 
for  a  longer  distance  over  the  same  line  in  the  same  direction,  the  shorter 
being  included  within  the  longer  distance,  except  that  such  charges  may  be 
authorized  by  the  Commission  in  special  cases.  All  rates  must  be  published, 
must  be  filed  with  the  Commission,  and  kept  open  to  public  inspection.  The 
Commission  has  power  to  revise  rates  and  divisions  of  rates  when  unreason- 
able, to  review  all  newly  established  rates,  and,  of  its  own  motion,  to  estab- 
lish new  joint  through  routes  and  rates  when  necessary.  Where  there  are 
two  or  more  established  through  routes,  the  shipper  has  the  right  to  desig- 
nate in  writing  by  which  of  such  routes  his  goods  shall  be  shipped. 

All  property  for  transportation  must  fee  classified,  and  rates,  regulations, 
and  practices  established  on  the  basis  of  such  classification.  It  is  unlawful 
for  any  railroad  company  to  transport  any  commodity,  other  than  timber 
and  its  manufactured  products,  manufactured,  mined,  or  produced  by  it  or 
which  it  owns  or  in  which  it  has  any  interest,  except  such  as  may  be  intended 
for  its  use  in  the  conduct  of  its  business  as  a  common  carrier.  The  purpose 
of  this  provision  was  to  attack  the  ownership  of  coal  mines  and  lands  by  the 
railroad  companies,  by  reason  of  which  they  had  too  great  an  influence  on 
coal  production  and  distribution. 

This  act  contains  many  provisions  to  insure  equal  treatment  for  all 
persons  using  the  railroads.    The  issuance  of  free  passes  is  forbidden,  except 

376 


CONTROL  OF  COMMERCE  377 

to  officers  and  employees  cf  the  issuing  carrier  or  other  ccmmon  carriers.  It 
is  unlawful  to  discriminate  unjustly  between  one  shipper  and  another  or  be- 
tween one  passenger  and  another.  It  is  unjust  discrimination  if  the  carrier, 
by  any  special  rate,  rebate,  or  other  device,  charges  or  receives  a  greater  or 
less  compensation  from  any  person  than  it  receives  from  any  other  person 
for  doing  like  service  under  similar  circumstances  and  conditions.  Common 
carriers  are  forbidden  to  disclose  any  information  about  property  shipped  or 
routes  of  shipment,  which  might  be  used  to  the  detriment  or  prejudice  of  a 
shipper  or  consignee,  or  might  improperly  disclose  his  business  transactions 
to  a  competitor. 

Removal  or  lessening  of  competition  between  carriers  by  agreements  for 
pooling  freights,  or  by  dividing  the  earnings  of  such  carriers,  is  expressly  for- 
bidden. While  on  its  face  this  provision  would  appear  to  keep  down  freight 
rates  and  so  benefit  the  public,  its  merit  is  doubtful.  Under  the  federal 
administration  of  the  railroads  during  the  World  War,  the  freight,  earnings, 
expenses,  and  everything  were  pooled,  in  order  to  secure  the  greatest  possible 
economy  and  efficiency. 

The  Commission  has  authority  to  inquire  into  .the  management  of  the 
business  of  all  common  carriers  and  to  prescribe  a  uniform  system  of  account- 
ing. Annual  reports  are  required  from  every  carrier,  showing  in  consider- 
able detail  all  of  its  business  during  the  year,  and  these  enable  the  Com- 
mission to  maintain  careful  supervision  over  the  entire  transportation  of  the 
country. 

The  Commission  also  investigates,  either  of  its  own  motion  or  on  com- 
plaints, anything  done  or  omitted  to  be  done  in  contravention  of  the  act. 
In  such  investigations  the  Commission  acts  as  a  court,  summons  witnesses, 
tries  issues  of  fact,  grants  orders,  and  may  award  damages  if  the  facts  warrant. 

Elkins  Act.  —  This  act  was  passed  to  give  added  force  to  the  provisions 
•of  the  Interstate  Commerce  Act  in  respect  to  giving  or  receiving  rebates. 
It  provides  that  any  person  or  corporation  giving  or  receiving  any  concession 
in  respect  to  the  transportation  of  property  in  interstate  commerce,  whereby 
such  property  by  any  device  whatever  is  transported  at  a  less  rate  than  the 
published  tariff,  shall  be  guilty  of  a  misdemeanor  and  punishable  by  a  fine  of 
not  less  than  $1000,  or  more  than  $20,000,  and  individuals  may  be  impris- 
oned. 

Bills  of  Lading  Act.  —  This  act  makes  uniform  the  law  and  practice  of 
issuing  bills  of  lading  for  interstate  commerce.  It  defines  the  "straight  bill" 
and  the  "order  bill"  and  fixes  the  law  as  to  negotiation  of  bills  of  lading,  the 
respective  rights  and  duties  of  carriers  and  shippers  as  to  delivery  of  goods, 
damage  to  goods,  etc.  The  subject  is  not  of  sufficient  general  importance  to 
warrant  a  detailed  synopsis  of  the  statute,  but  it  should  be  consulted  by  any 
person  regularly  engaged  in  interstate  shipment  of  goods. 

Anti-Trust  Laws.  —  To  prevent  undue  advancement  of  prices  and 
stiffing  of  competition  Congress  has  passed  laws  "to  protect  trade  and  com- 
merce against  unlawful  restraint  and  monopolies."    These  laws  have  given 


378  IMPORTANT  STATUTES 

rise  to  some  of  the  most  important  and  bitterly  contested  litigation  in  our 
history. 

Sherman  Anti-Trust  Act.  —  This  act  was  the  first  of  the  so-called  "anti- 
trust laws"  and  was  adopted  in  1890.  It  provides  that  "every  contract, 
combination  in  the  form  of  trust  or  otherwise,  or  conspiracy,  in  restraint  of 
trade  or  commerce  among  the  several  states,  or  with  foreign  nations,  is  hereby 
declared  to  be  illegal"  and  every  person  making  such  contract  or  engaging 
in  such  combination  or  conspiracy  is  guilty  of  a  misdemeanor  and  punishable 
by  fine  or  imprisonment.  Also  every  person  who  shall  monopolize,  or  con- 
spire or  combine  to  monopolize,  any  part  of  such  trade  or  commerce  is 
guilty  of  a  misdemeanor.  Any  person  injured  in  his  business  or  property 
by  reason  of  anything  forbidden  by  the  act,  may  sue  the  offending  person  or 
corporation  therefor,  and  recover  threefold  the  damages  sustained  by  him. 

Clayton  Act.  —  This  act  was  adopted  in  19 14  "to  supplement  existing 
laws  against  unlawful  restraints  and  monopolies,"  and  is  much  more  far- 
reaching  and  detailed  in  its  provisions. 

Under  the  act  it  is  unlawful  to  discriminate  in  price  between  different 
purchasers  of  commodities,  where  the  effect  of  such  discrimination  might  be 
to  substantially  lessen  competition  or  to  create  a  monopoly;  but  there  may 
be  discrimination  on  account  of  grade,  quantity,  or  quality,  or  to  allow  for 
differences  in  transportation  or  selling  cost,  or  in  different  communities  to 
meet  competition;  and  any  seller  of  goods  may  select  his  own  customers  in 
bona  fide  transactions  and  not  in  restraint  of  trade.  It  is  unlawful  to  sell  or 
lease  goods,  or  to  fix  a  price  therefor  or  allow  a  discount  from  such  price,  on 
condition  that  the  purchaser  or  lessee  shall  not  deal  in  goods  of  a  competitor 
of  the  seUer,  where  the  effect  might  be  to  substantially  lessen  competition  or 
tend  to  create  a  monopoly.  Threefold  damages  may  be  recovered  as  under 
the  Sherman  Act. 

The  labor  of  a  human  being  is  expressly  declared  not  to  be  a  commodity 
or  an  article  of  commerce,  and  labor  unions  and  similar  organizations  shall 
not  be  held  or  construed  to  be  illegal  combinations  or  conspiracy  in  restraint 
of  trade  under  the  anti-trust  laws. 

The  act  also  forbids  the  acquisition  by  one  corporation  of  all  or  part  of 
the  stock  of  one  or  more  separate  corporations,  whereby  competition  be- 
tween them  may  be  lessened  or  commerce  restrained  or  a  monopoly  created. 
This  does  not  forbid  the  formation  of  subsidiary  corporations  to  carry  on  the 
legitimate  business,  or  extensions  thereof,  of  the  parent  corporation. 

"Interlocking  directorates"  are  also  prohibited,  by  provisions  forbidding 
a  person  to  be  a  director,  officer,  or  employee  of  more  than  one  bank  of  a  cer- 
tain  kind,  or  a  director  of  more  than  one  corporation  engaged  in  commerce, 
having  a  capital,  surplus,  and  undivided  profits  of  more  than  $1,000,000  if 
such  corporations  have  been  competitors,  so  that  the  lessening  of  competi- 
tion between  them  by  agreement  would  be  a  violation  of  the  anti-trust  laws. 

Trade  Commission  Act.  —  This  act  was  passed  in  19 14  for  the  purpose 
of  preventing  unfair  competition  in  interstate  and  foreign  commerce,  and 


EMPLOYERS'  LIABILITY  379 

generally  to  assist  the  commerce  of  the  country  by  information  and  other- 
wise. 

The  act  creates  a  Federal  Trade  Commission,  composed  of  five  com- 
missioners, with  its  principal  office  in  Washington.  The  Commission  has 
power  to  compile  information  concerning,  and  to  investigate  the  business 
practices  and  management  of,  any  corporation  engaged  in  commerce,  except 
banks  and  common  carriers,  and  its  relations  to  other  corporations  and 
persons;  to  require  from  such  corporations  annual  or  special  reports;  to 
investigate  the  manner  in  which  decrees  of  the  courts  in  suits  for  violation 
of  the  anti-trust  laws  are  being  carried  out;  to  investigate  and  report  on 
alleged  violations  of  such  laws;  to  investigate  and  make  recommendations 
for  the  readjustment  of  the  business  of  any  corporation  alleged  to  be  violat- 
ing such  laws,  in  order  that  the  corporation  may  maintain  its  organization 
and  conduct  its  business  according  to  law;  to  make  public  such  informa- 
tion as  it  may  have  obtained,  except  trade  secrets,  as  it  shall  deem  to  the 
public  interest;  to  make  reports  to  Congress  and  recommendations  for 
legislation;  and  to  investigate  and  report  upon  trade  conditions  in  and  with 
foreign  countries. 

The  act  expressly  declares  that  unfair  methods  of  competition  in  com- 
merce are  illegal,  empowers  the  Commission  to  prevent  such  unfair  methods, 
and  to  that  end  authorizes  hearings  on  complaints  and  the  issuance  of 
orders  to  cease  the  unfair  methods. 

Employers'  Liability.  —  Reference  has  been  made  in  the  chapter  on 
Insurance  to  the  fact  that  an  employer  may  be  liable  for  damages  for  the 
injury  or  death  of  his  employee.  In  actions  at  common  law  to  recover  such 
damages  the  employer  could  defend  on  the  ground  that  the  employee's  injury 
was  caused  by  his  own  negligence  (contributory  negligence)  or  by  the  negli- 
gence of  another  employee  (fellow  servant  doctrine),  or  that  the  employee 
had  assumed  the  risk  of  the  accident  (assumption  of  risk).  These  doctrines 
often  resulted  in  injustice  to  the  injured  employee.  In  recent  years  a  number 
of  statutes  have  been  passed  which  rest  on  the  theory  that  accidents  to 
employees  are  necessary  incidents  to  any  business,  and  that  the  injured 
employee  should  be  compensated  for  his  injury  without  regard  to  technical 
defenses. 

Federal  Employers'  Liability  Act.  —  This  act  provides  that  every  com- 
mon carrier  by  railroad  engaged  in  interstate  commerce  shall  be  liable  for  the 
injury  or  death  of  an  employee,  caused  by  its  negligence  or  any  defect  in  its 
equipment  or  appliances.  In  any  action  to  recover  damages  for  such  injury 
or  death,  assumption  of  risk  is  not  a  defense,  and  the  contributory  negli- 
gence of  the  employee  shall  not  bar  a  recovery,  but  the  damages  shall  be 
diminished  in  proportion  to  the  amount  of  negligence  attributable  to  the 
employee.  Any  contract,  rule,  or  regulation  by  which  the  carrier  seeks  to 
exempt  itself  from  liability  under  the  act  is  void. 

"Workmen's  Compensation  Laws.  —  A  number  of  states  have  passed 
laws  providing  for  the  payment  by  the  employer  of  compensation  for  injury 


38o  IMPORTANT  STATUTES 

or  death  of  an  employee.  These  laws  differ  somewhat  in  details,  but  their 
general  characteristics  are  as  follows: 

The  laws  apply  to  all  employees  engaged  in  certain  specified  employ- 
ments, which  are  characterized  as  hazardous.  These  employments  are  classi- 
fied, and  include  nearly  all  forms  of  labor  in  which  injury  is  likely  to  occur. 
Farm  labor  and  domestic  service  are  not  included. 

Every  employer  of  labor  engaged  in  one  of  the  classified  occupations  is 
liable  for  compensation  for  the  death  or  disability  of  his  employee  from  an 
accidental  personal  injury  arising  out  of  and  in  the  course  of  his  employment, 
without  regard  to  negligence  or  the  cause  of  the  accident,  unless  it  was 
caused  by  the  willful  intention  or  resulted  solely  from  the  intoxication  of  the 
injured  employee.  With  these  two  exceptions  the  injured  employee  is 
absolutely  entitled  to  compensation,  regardless  of  its  cause,  if  it  occurred  in 
the  course  of  his  employment. 

This  liability  of  the  employer  is  exclusive  and  in  place  of  any  other 
Hability  whatsoever. 

The  compensation  to  be  paid  is  based  on  the  wages  of  the  employee. 
He  receives  his  wages  for  a  certain  number  of  weeks  as  provided  in  a  sched- 
ule of  different  injuries  and  disabilities,  and  the  employer  is  also  required  to 
furnish  medical,  surgical,  and  hospital  facilities  for  a  certain  period  after  the 
accident. 

The  employee  is  required  to  notify  his  employer  of  his  claim  for  com- 
pensation, and  if  they  cannot  agree  on  the  amount  to  be  paid,  the  matter  is 
referred  to  a  commission  for  determination. 

To  secure  the  payment  of  compensation  the  employer  is  required  to 
insure  the  payment  with  an  insurance  company  or  satisfy  the  commission  of 
his  ability  to  make  such  payments.  In  case  of  his  failure  so  to  secure  the 
payment  of  compensation,  he  is  liable  to  a  penalty,  and  an  injured  employee 
may  elect  to  take  compensation  under  the  law,  or  may  sue  in  the  courts  for 
damages,  and  in  any  such  suit  the  fellow  servant  doctrine,  assumption  of  risk, 
and  contributory  negligence  are  not  available  as  defenses  to  the  employer. 


APPENDIX— FORMS 

Form  i.  SHORT  FORM  SIMPLE  CONTRACT 

This  agreement  made  the  first  day  of  May,  19 — ,  between  J.  C.  Boycrs 
and  Ralph  Benson:  Witnesseth  that  it  is  agreed  that  the  said  Ralph  Benson 
shall  serve  to  the  best  of  his  ability  the  said  J.  C.  Boyers,  as  manager  of 
the  branch  store  of  the  said  J.  C.  Boyers  for  the  period  of  one  year  from  and 
after  the  first  day  of  May,  19 — ,  and  the  said  J.  C,  Boyers  agrees  to  pay  the 
said  Ralph  Benson  the  sum  of  one  hundred  and  fifty  dollars  per  month, 
payable  monthly  on  the  last  working  day  of  each  month  during  the  term  of 
this  contract,  and  it  is  further  agreed  that  the  said  Ralph  Benson  shall  have 
two  weeks'  vacation  with  full  pay  during  the  month  of  August. 

Signed  in  duplicate  on  this  first  day  of  May,  19 — . 

J.  C.  Boyers. 
Ralph  Benson. 

Form  2.   FORMAL  CONTRACT 

This  agreement  made  in  duplicate   this  first   day  of  November  one 

thousand  nine  hundred  and ,  by  and  between  Andrew  J.  Mackey  of 

the  city  of  Chicago,  county  of  Cook  and  state  of  Illinois,  of  the  first  part,  and 
Howard  M.  Lee  of  the  city,  county,  and  state  aforesaid,  of  the  second  part. 

Witnesseth,  that  the  said  party  of  the  first  part  for  and  in  consideration 
of  the  agreement  hereinafter  contained,  to  be  performed  by  the  party  of  the 
second  part,  agrees  to  and  with  said  party  to  construct  and  finish  in  a  good 
workmanlike  manner  five  delivery  trucks  in  accordance  with  the  plans  and 
specifications  hereto  attached,  on  or  before  the  first  day  of  April  next. 
And  the  party  of  the  second  part,  in  consideration  thereof,  agrees  to  pay  to 
the  said  party  of  the  first  part  for  the  same  the  sum  of  ten  thousand  dollars, 
lawful  money  of  the  United  States,  as  follows:  the  sum  of  one  thousand 
dollars  at  the  time  of  signing  this  contract,  the  receipt  whereof  is  hereby 
acknowledged,  and  the  balance  of  nine  thousand  dollars  when  the  five  trucks 
are  completed  according  to  the  plans  and  specifications,  and  delivered 
f.  o.  b.  Chicago. 
.  In  Witness  Whereof,  the  parties  named  herein  have  hereunto  set 
their  hands  and  seals  the  day  and  year  first  above  mentioned. 

Andrew  J.  Mackey.  (L.S.) 

In  the  presence  of  Howard  M.  Lee.        (L.S.) 

D.  W.  Warner. 

State  of  Illinois  1 

County  of  Cook/ 

On  the  first  day  of  November,  one  thousand  nine  himdred  and , 

before  me,  the  subscriber,  personally  appeared  Andrew  J.  Mackey  and 

381 


ss. 


382  APPENDIX— FORMS 

Howard  M.  Lee,  to  me  personally  known  to  be  the  persons  described  in  and 
who  executed  the  foregoing  instrument,  and  they  severally  acknowledged 
to  me  that  they  executed  the  same. 

John  W.  Dodd, 
Notary  Public  for  Cook  County,  Illinois. 

Form  3.  ASSIGNMENT  OF  CONTRACT— INDORSEMENT  FORM 

For  and  in  consideration  of  One  Dollar  and  of  other  good  and  valuable 
considerations,  the  receipt  whereof  is  hereby  acknowledged,  the  American 
Utility  Company  does  hereby  sell,  assign,  transfer,  and  set  over  to  Francis  E. 
Palmer  the  within  contract  with  all  the  rights,  privileges,  obligations,  and 
undertakings  thereof  as  therein  set  forth. 

In  Witness  Whereof,  the  American  Utility  Company  has  caused  this 
instrument  to  be  executed  by  its  President  and  its  corporate  seal  to  be 
hereunto  affixed  and  attested  by  its  Secretary  this  17th  day  of  November, 
19—. 

Attest  seal:  American  Utility  Company 

R.  O.  North,  By  A.  W.  Walters,  President. 


Secretary. 


Form  4.  BILL  OF  SALE 


Be  it  known  that  James  B.  Hunter  of  Philadelphia,  Pennsylvania,  in 
consideration  of  the  sum  of  Five  Hundred  Dollars  paid  by  William  J.  Allen 
of  Harrisburg,  Pennsylvania,  the  receipt  of  which  is  hereby  acknowledged, 
does  hereby  sell,  transfer,  and  deliver  unto  the  said  William  J.  Allen,  the 
following  goods  and  chattels  viz: 

(List  of  the  articles  sold  should  be  written  in  this  space.) 

To  have  and  to  hold  the  said  goods  and  chattels  unto  the  said  William  J. 
Allen,  his  representatives  and  assigns  forever.  And  I,  the  said  James  B. 
Hunter,  do  hereby  covenant  that  I  am  the  lawful  owner  of  the  said  goods 
and  chattels,  that  they  are  free  from  incumbrances,  that  I  have  a  good  right 
to  sell  them,  and  that  I  will  warrant  and  defend  the  title  of  the  same  against 
the  claims  and  demands  of  all  persons. 

In  Witness  Whereof,  I  have  hereunto  set  my  hand  and  seal  in  Phila- 
delphia, Pennsylvania,  this  15th  day  of  September,  19 — . 

James  B.  Hunter.  (L.S.) 

Form  5.   POWER  OF  ATTORNEY 

Know  all  men  by  these  presents  that  I,  James  George,  of  Chicago, 
Illinois,  have  made,  constituted,  and  appointed,  and  by  these  presents  do 
make,  constitute,  and  appoint  John  Forbes  of  Portland,  Oregon,  my  true 
and  lawful  attorney  for  me  and  in  my  name,  place,  and  stead  to 
(state  fully  what  is  to  be  done  by  the  attorney) ; 


APPOINTMENT  OF  SPECIAL  AGENT  383 

giving  and  granting  unto  my  said  attorney  full  power  and  authority  to  do 
and  perform  all  and  every  act  and  thing  whatsoever  requisite  and  necessary 
to  be  done  in  and  about  the  premises,  as  fully  to  all  intents  and  purposes  as 
I  might  or  could  do  if  personally  present,  with  full  power  of  substitution  and 
revocation,  hereby  ratifying  and  confirming  all  that  my  said  attorney  or 
his  substitute  shall  lawfully  do  or  cause  to  be  done  by  virtue  hereof. 

In  Witness  Whereof,  I  have  hereunto  set  my  hand  and  seal  this 

eleventh  day  of  May  in  the  year  one  thousand,  nine  hundred  and . 

James  George.  (L.S.) 

Executed  and  delivered  in  the  presence  of: 
Matthew  Arnold. 


Form  6.  APPOINTMENT  OF  SPECIAL  AGENT 
I,  the  undersigned,  do  hereby  constitute  and  appoint  Daniel  C.  King, 
of  Salt  Lake  City,  Utah,  my  agent  and  representative,  for  me  and  in  my 
place  and  stead  to  receive  and  receipt  for  the  payment  due  from  the  business 
of  Robert  Mason,  deceased,  late  of  Salt  Lake  City,  Utah,  and  authorize 
him  to  do  all  other  things  that  may  be  necessary  in  connection  therewith 
and  to  carry  into  effect  the  intent  of  this  appointment  and  I  hereby  ratify 
and  confirm  all  that  my  said  agent  may  do  in  pursuance  of  the  authority 
herein  conferred. 

In  Witness  Whereof,  I  have  hereunto  set  my  hand  and  seal,  in 
Memphis,  Tennessee,  this  loth  day  of  April,  19 — . 

Daniel  C.  King.  (L.S.) 

NEGOTIABLE  IIn^STRUMENTS 

Form  7.   CHECK  BY  INDIVIDUAL 

No.  849  Boston,  Mass.,  Aug.  15,  19 — . 

The  Merchants  National  Bank 

Pay  to  the  order  of James  Farley 

Dollars. 


$200  ^o°u  H.  E.  Eldrkge 

Form  8.  PROMISSORY  NOTE 
$100  ^5*V  Cleveland,  Ohio,  July  15,  19—. 

Sixty  days after  date ...  T ... .  promise  to  pay  to 

the  order  of  George  Bowman 

One  hundred  j%% Dollars. 

at The  Merchants  National  Bank 

Value  received  with  interest  at  6%. 

No Due E.  F.  Sanford 


384  APPENDIX— FORMS 

Form  9.   CORPORATION  NOTE 
$1000  ^^%                                                                   New  York,  Sept.  10,  19 — . 
Ninety  days ....  after  date ....  Progress  Construction  Company  prom- 
ises to  pay  to  the  order  of  H.  C.  Lyman  the  sum  of 

One  thousand  i%% Dollars. 

Value  received  with  interest  at  5%. 

Payable  at  Progress  Construction  Company. 

Commercial  National  Bank  By  John  E.  Blake 

New  York  President. 

Form  10.   SIGHT  DRAFT,  INDIVIDUAL 

$500  M  New  York,  Aug.  5,  19—. 

At  sight  pay  to  the  order  of Homer  Randall 

Five  Hundred  j%%  Dollars. 

Value  received  and  charge  to  account  of 

To  George  Davis  1  John  G.  Hawley 

Minneapolis,  Minn.  J 

If  this  draft  were  worded  *'At  thirty  days  sight"  or  '' Thirty 
days  after  date"  it  would  be  a  time  draft. 

Form  ii.  BANK  DRAFT 

Merchants  Bank  of  Chicago 

No.  22527  •  '  Chicago,  III,  Dec.  22,  19 — . 

Pay  to  the  order  of .  .  . Charles  M.  Allen SiooTVff 

One  Hundred  ^%% Dollars. 

To  The  Chemical  National  Bank,  William  G.  Gancourt 

City  of  New  York.  Cashier. 

Form  12.   ARTICLES  OF  COPARTNERSHIP 

This  agreement  made  and  entered  into  this  thirty-first  day  of  October, 

One  thousand  nine  hundred  and ,  by  and  between  Charles  Snow 

of  Portland,  Oregon,  the  first  part,  and  Edward  M.  Chapin  of  the  same 
place  of  the  second  part,  witnesseth  as  follows:  — 

1.  The  said  parties,  above  named,  hereby  agree  to  become  partners  in 
the  business  of  buying  and  selling  dry  goods  under  the  firm  name  of  Snow  & 
Co.,  said  business  to  be  carried  on  in  the  city  of  Portland,  or  such  other 
place  or  places  as  the  parties  may  hereafter  determine. 

2.  The  capital  of  the  said  partnership  shall  consist  of  the  sum  of  ten 
thousand  dollars,  to  be  contributed  as  follows:  The  party  of  the  first  part 
shall  contribute  his  stock  of  dry  goods  and  the  good  will  of  the  business 


ARTICLES  OF  COPARTNERSHIP  385 

heretofore  conducted  by  him,  which  are  together  valued  by  the  parties 
hereto  at  the  sum  of  five  thousand  dollars;  and  the  party  of  the  second  part 
shall  contribute  the  sum  of  five  thousand  dollars  in  cash.  Such  capital  is 
to  be  used  and  employed  in  common  between  the  parties  hereto  for  the 
support  and  management  of  said  business. 

3.  At  all  times  during  the  continuance  of  their  copartnership  they  and 
each  of  them  shall  give  their  time  and  attention  to  said  business,  and  to  the 
utmost  of  their  skill  and  power  exert  themselves  for  their  joint  interest, 
profit,  benefit,  and  advantage,  and  truly  employ,  buy  and  sell,  and  trade 
with  their  joint  stock  and  the  increase  thereof  in  the  business  aforesaid; 
and  they  shall  also  at  all  times  during  the  said  copartnership  bear,  pay,  and 
discharge  equally  between  them  all  rents  and  expenses  that  may  be  required 
for  the  management  and  support  of  said  business;  and  all  gains,  profits, 
and  increase  that  shall  grow  or  arise  from  or  b)^  means  of  their  said  business 
shall  be  equally  divided,  and  all  losses  by  bad  debts  or  otherwise  shall  be 
borne  and  paid  by  them  equally. 

4.  Each  of  said  partners  shall  be  at  liberty  to  draw  out  of  the  funds  of 
the  firm  each  month  for  his  private  expenses  the  sum  of  one  hundred  dollars, 
and  neither  of  them  shall  take  any  further  sum  for  his  own  separate  use  with- 
out the  consent  in  writing  of  the  other  partner.  The  sums  so  drawn  shall 
be  charged  against  the  partners  respectively,  and  if  at  the  annual  settlement, 
hereinafter  provided  for,  the  profits  of  either  partner  do  not  amount  to  the 
sum  so  drawn  out  in  that  year,  he  shall  at  once  repay  such  deficiency. 

5.  All  the  transactions  of  the  said  copartnership  shall  be  entered  in 
regular  books  of  account,  and  on  the  first  day  of  January  in  each  year  during 
the  continuance  of  this  copartnership  account  of  stock  shaU  be  taken,  and 
an  account  of  the  expenses  and  profits  adjusted  and  exhibited  on  said  books; 
said  profits  shall  then  be  divided,  and  one  half  carried  to  the  separate  account 
of  each  partner.  Either  partner  shall  be  at  liberty  to  withdraw  at  any 
time  the  whole  or  any  part  of  his  share  of  the  accrued  profits  thus  ascertained 
and  carried  to  his  separate  account.  Each  partner  shall  have  open  and 
free  access  to  the  books  and  accounts  of  the  copartnership  at  all  times,  and 
no  material  or  important  changes  shall  at  any  time  be  made  in  the  general 
business  of  the  firm,  either  in  the  buying  of  stock  or  in  any  other  respect,  by 
either  partner  without  the  knowledge  and  consent  of  the  other. 

6.  And  the  said  parties  hereby  mutually  covenant  and  agree,  to  and 
with  each  other,  that  during  the  continuance  of  the  said  copartnership 
neither  of  them  shall  indorse  any  note,  or  otherwise  become  surety  for  any 
person  or  persons  whomsoever,  without  the  consent  of  the  other  of  said 
copartners.  And  at  the  determination  of  their  copartnership,  the  said 
copartners,  each  to  the  other,  shall  make  a  just  and  final  account  of  all 
things  relating  to  their  business,  and  in  all  things  truly  adjust  the  same;  and 
all  and  every,  the  stock  and  stocks  as  well  as  the  gains  and  increase  thereof, 
which  shall  appear  to  be  remaining,  either  in  money,  goods,  wares,  fixtures, 
debts,  or  otherwise,  shall  be  divided  equally  between  them. 


386  APPENDIX— FORMS 

7.   This  agreement  and  the  partnership  hereby  created  shall  continue 
in  full  force  and  effect  for  the  period  of  ten  years  from  the  date  hereof. 

In  Witness  Whereof,  the  said  parties  have  hereunto  set  their  hands 
and  seals  this  thirty-first  day  of  October,  19 — . 

Charles  Snow.  (L.  S.) 

Edward  M.  Chapin.  (L.  S.) 

(Many  other  provisions  may  be  inserted,  as  the  facts  require.) 

Form  13.   PROXY— SIMPLE  FORM 
I  hereby  appoint  David  E.  Singer  my  proxy,  with  full  authority  to  vote 

for  me  and  in  my  place  at  any  and  all  stockholders'  meetings  of  the  Union 

Power  Company. 

Witness  my  hand  and  seal  this  loth  day  of  June,  19 — . 

In  the  presence  of  John  Wendell 

Martin  Cook 

Form  14.   DEED  WITH  FULL  COVENANTS 

This  Indenture,  made  the  ist  day  of  October,  nineteen  hundred  and 
-,  between  Homer  Johnson  of  Rochester,  New  York,  party  of  the 


first  part,  and  Benjamin  Green  of  the  same  place,  party  of  the  second  part: 

WITNESSETH,  that  the  party  of  the  first  part,  in  consideration  of  Two 
Thousand  Dollars  ($2000),  lawful  money  of  the  United  States,  paid  by  the 
party  of  the  second  part,  does  hereby  grant  and  release  unto  the  party  of 
the  second  part,  his  heirs  and  assigns  forever,  all ...  . 

(Description  of  property  to  be  conveyed.) 

Together  with  the  appurtenances  and  aU  the  estate  and  rights  of  the 
party  of  the  first  part  in  and  to  said  premises: 

To  have  and  to  hold  the  premises  herein  granted  unto  the  party  of  the 
second  part,  his  heirs  and  assigns  forever. 

And  said  Homer  Johnson  covenants  as  follows: 

First  —  That  said  Homer  Johnson  is  seized  of  said  premises  in  fee 
simple,  and  has  good  right  to  convey  the  same; 

Second  —  That  the  party  of  the  second  part  shall  quietly  enjoy  the  said 
premises; 

Third — ^That  the  said  premises  are  free  from  incumbrances; 

Fourth  —  That  the  party  of  the  first  part  will  execute  or  procure  any 
further  necessary  assurance  of  the  title  to  said  premises; 

Fifth  —  That  said  Homer  Johnson  will  forever  warrant  the  title  to  said 
premises. 

In  Witness  Whereof,  the  party  of  the  first  part  has  hereunto  set  his 
hand  and  seal  the  day  and  year  above  written. 

Homer  Johnson  (L.  S.) 
In  presence  of: 

R.  H.  Stolte 

(Should  be  acknowledged  in  due  form.) 


REAL  ESTATE  MORTGAGE  387 

Form  15.  REAL  ESTATE  MORTGAGE— SHORT  FORM 

This  Mortgage,  made  the  loth  day  of  January,  nineteen  hundred 
and  nineteen,  between  Robert  C.  Green  of  New  York,  N.  Y.,  the  mortgagor, 
and  John  A.  Delano  of  the  same  place,  the  mortgagee. 

WITNESSETH,  that  to  sccure  the  payment  of  an  indebtedness  in  the  sum 
of  Twenty-Five  Hundred  Dollars  ($2500),  lawful  money  of  the  United 
States,  to  be  paid  on  the  loth  day  of  January,  nineteen  hundred  and  twenty- 
one,  with  interest  thereon  to  be  computed  from  date,  at  the  rate  of  six  per 
centum  (6%)  per  annum,  and  to  be  paid  semi-annually,  according  to  a  certain 
bond  or  obligation  bearing  even  date  herewith,  the  mortgagor  hereby 
mortgages  to  the  mortgagee  (Description  of  property  covered  by  mortgage.) 

And  the  mortgagor  covenants  with  the  mortgagee  as  follows: 

1.  That  the  mortgagor  will  pay  the  indebtedness  as  hereinbefore 
provided. 

2.  That  the  mortgagor  will  keep  the  buildings  on  the  premises  insured 
against  loss  by  fire  for  the  benefit  of  the  mortgagee. 

3.  That  no  building  on  the  premises  shall  be  removed  or  demolished 
without  the  consent  of  the  mortgagee. 

4.  That  the  whole  of  said  principal  sum  shall  become  due  after  default 
in  the  payment  of  any  installment  of  principal  or  of  interest  for  thirty  days, 
or  after  default  in  the  payment  of  any  tax,  water  rate,  or  assessment  for 
ten  days  after  notice  and  demand. 

5.  That  the  holder  of  this  mortgage,  in  any  action  to  foreclose  it,  shall 
be  entitled  to  the  appointment  of  a  receiver. 

6.  That  the  mortgagor  will  pay  all  taxes,  assessments,  or  water  rates, 
and  in  default  thereof,  the  mortgagee  may  pay  the  same,  and  all  amounts 
so  paid  shall  be  added  to  the  amount  already  secured  by  this  mortgage. 

7.  That  the  mortgagor,  within  five  days  upon  request  in  person  or 
within  ten  days  upon  request  by  mail,  shall  furnish  a  statement  of  the 
amount  due  on  this  mortgage. 

8.  That  notice  and  demand  or  request  may  be  in  writing  and  may  be 
served  in  person  or  by  mail. 

9.  That  the  mortgagor  warrants  the  title  to  the  premises. 

In  Witness  Whereof,  this  mortgage  has  been  duly  executed  by  the 
mortgagor. 
In  presence  of: 

C.  C.  Taylor  Robert  C.  Green.  (L.S.) 

(This  mortgage  should  be  acknowledged  in  due  form.) 

Form  16.   SATISFACTION  OF  MORTGAGE 

Know  all  men  by  these  presents  that  I,  James  S.  Hopkins,  do  hereby 

certify  that  a  certain  indenture  of  mortgage,  bearing  date  the  25  th  day  of 

June,  192-,  made  and  executed  by  Horace  L.  Harding,  to  secure  payment 

of  the  principal  sum  of  two  thousand  dollars  and  interest  and  duly  recorded 


SS8  APPENDIX— FORMS 

in  the  office  of  the  Register  of  Westchester  County  in  Liber  327  of  mortgages, 
page  186,  in  the  i6th  day  of  July,  19 2-,  is  paid  and  do  hereby  consent  that 
the  same  be  discharged  of  record. 
Dated  the  14th  day  of  August,  192- 

In  the  presence  of  James  S.  Hopxins 

M.  L.  Jones 

(This  instrument  should  be  acknowledged  in  due  form.) 

Form  17.   CHATTEL  MORTGAGE 

Know  All  Men  by  These  Presents: 

That  I,  William  J.  Curtis  of  Newark,  New  Jersey,  am  indebted  unto 
R.  H.  Denmore,  of  the  city  of  New  York,  N.  Y.,  in  the  sum  of  Two  Hundred 
Fifty  Dollars  ($250),  being  for  goods  sold  and  delivered  to  me:  Now,  for 
securing  the  payment  of  the  said  debt,  and  interest  from  the  date  hereof,  to 
the  said  R.  H.  Denmore,  I  do  hereby  sell,  assign,  and  transfer  to  the  said 
R.  H.  Denmore  all  the  goods,  chattels,  and  property  described  in  the 
following  schedule,  namely, 

(List  of  property  covered  by  mortgage.) 

Said  property  now  being  and  remaining  in  the  possession  of  myself,  at 
my  store,  No.  840  Broad  Street,  Newark,  New  Jersey. 

Provided  always,  and  this  mortgage  is  on  the  express  condition,  that  if 
the  said  William  J.  Curtis  shall  pay  to  R.  H.  Denmore  the  sum  of  Two 
Hundred  Fifty  Dollars  ($250),  within  one  year  and  six  months  from  the  date 
hereof,  with  interest  at  six  per  cent  (6%)  per  annum,  which  said  sum  and 
interest  the  said  William  J.  Curtis  hereby  covenants  to  pay,  then  this  transfer 
is  to  be  void  and  of  no  effect;  but  in  case  of  nonpayment  of  the  said  sum  at 
the  time  or  times  above  mentioned,  together  with  interest,  then  the  said 
R.  H.  Denmore  shall  have  full  power  and  authority  to  enter  upon  the 
premises  of  the  said  party  of  the  first  part,  or  any  other  place  or  places  where 
the  goods  and  chattels  aforesaid  may  be,  to  take  possession  of  said  property, 
to  sell  the  same,  and  the  avails  (after  deducting  all  expenses  of  the  sale  and 
keeping  of  the  said  property)  to  apply  in  payment  of  the  above  debt;  and 
in  case  the  said  R.  H.  Denmore  shall  at  any  time  deem  himself  unsafe,  it 
shall  be  lawful  for  him  to  take  possession  of  such  property  and  sell  the  same 
at  public  or  private  sale,  previous  to  the  time  above  mentioned  for  the  pay- 
ment of  said  debt,  and  apply  the  proceeds  as  aforesaid,  after  deducting  all 
expenses  of  the  sale  and  keeping  of  said  property.  If  from  any  cause  said 
property  shall  fail  to  satisfy  said  debt,  interest,  costs,  and  charges,  the  said 
William  J.  Curtis  hereby  covenants  and  agrees  to  pay  the  deficiency. 

In  Witness  Whereof,  I  have  hereunto  affixed  my  hand  and  seal,  this 
eleventh  day  of  December,  nineteen  hundred  and . 

In  the  presence  of:  Willlajvi  J.  Curtis.  (L.S.) 

James  C.  Crawford 

(This  mortgage  should  be  acknowledged  in  due  form.) 


LEASE  389 

Form  18.  LEASE 

This  Indenture,  made  this  i8th  day  of  September,  19 —  between 
William  E.  Weaver  of  the  City  of  New  York,  party  of  the  first  part,  and 
Lyman  Collins,  of  the  same  place,  party  of  the  second  part, 

Witnesseth 

That  the  party  of  the  first  part  has  let  and  by  these  presents  does  grant, 
demise,  and  let  unto  the  party  of  the  second  part  the  premises  known  as 
No.  406  West  228th  Street  in  said  City,  with  the  appurtenances,  for  the  term 
of  two  years  from  the  first  day  of  October,  19 — ,  at  the  yearly  rent  or  sum 
of  $960.  to  be  paid  in  equal  monthly  payments  in  advance  in  the  first  day  of 
each  and  every  month  during  said  term. 

And  it  is  agreed  that  if  any  rent  shall  be  due  or  unpaid,  or  if  default 
shall  be  made  in  any  of  the  covenants  herein  contained,  then  it  shall  be 
lawful  for  the  party  of  the  first  part  to  reenter  said  premises  and  to  remove 
all  persons  therefrom. 

And  the  party  of  the  second  part  hereby  covenants  to  pay  to  the  party 
of  the  first  part  the  said  rent  as  herein  specified.  And  also  to  pay  the  annual 
rent  or  charge,  assessed  or  imposed  on  said  premises  for  the  use  of  water. 

And  the  party  of  the  second  part  covenants  that  he  will  not  assign  this 
lease,  nor  any  interest  therein,  or  let  or  underlet  the  whole  or  any  part  of 
said  premises,  nor  make  any  alterations  therein,  without  the  written  consent 
of  the  party  of  the  first  part,  under  penalty  of  forfeiture  and  damages;  and 
that  he  will  not  occupy  or  use  said  premises  for  any  business  deemed  extra 
hazardous  on  account  of  fire  or  otherwise,  without  the  like  consent,  under 
like  penalty. 

And  at  the  expiration  of  said  term  the  party  of  the  second  part  will 
quit  and  surrender  the  premises  hereby  demised  in  as  good  condition  and 
order  as  reasonable  use  and  wear  thereof  will  permit,  damage  by  the  elements 
excepted. 

And  the  party  of  the  first  part  covenants  that  the  party  of  the  second 
part,  in  paying  the  said  yearly  rent  and  performing  the  covenants  aforesaid, 
shall  and  may  peaceably  and  quietly  have,  hold,  and  enjoy  the  said  demised 
premises  for  the  term  aforesaid. 

And  it  is  further  understood  that  the  covenants  and  agreements 
herein  contained  are  binding  on  the  parties  hereto  and  their  legal  represen- 
tatives. 

In  Witness  Whereof  the  parties  hereto  have  hereunto  set  their  hands 
and  seals  the  day  and  year  first  above  written. 

William  E.  Weaver.  (L.S.) 
Lyman  Collins.  (L.S.) 

Sealed  and  delivered  in  the 
presence  of 

Richard  Abbot. 


390  APPENDIX— FORMS 

Form  19.  WILL 

I,  Martin  E.  Webb,  of  the  city  of  Yonkers,  County  of  Westchester,  and 
State  of  New  York,  being  of  sound  mind,  memory,  and  understanding,  do 
make,  publish,  and  declare  the  following  as  and  for  my  last  Will  and  Testa- 
ment; that  is  to  say: 

First.  I  hereby  revoke  all  wills,  codicils,  or  testamentary  instruments 
by  me  at  any  time  heretofore  made. 

Second.  I  direct  that  my  just  debts  and  funeral  expenses  be  paid  as 
soon  after  my  death  as  may  be  practicable. 

Third.  I  give,  devise,  and  bequeath  to  my  wife,  Helen  Webb,  my 
residence  property  in  the  city  of  Yonkers,  known  as  No.  3582  Warburton 
Avenue,  including  therewith  all  furnishings  and  household  effects  therein 
contained;  and  also  the  sum  of  twenty  thousand  dollars. 

Fourth.  I  give  and  bequeath  to  my  son,  George  H.  Webb,  the  sum  of 
twenty  thousand  dollars,  my  Packard  automobile,  and  all  my  personal 
effects. 

Fifth.  I  give  and  bequeath  to  Children's  Guardian  Society,  a  cor- 
poration conducting  a  home  and  school  for  orphan  children  in  said  City  of 
Yonkers,  the  sum  of  One  Thousand  Dollars. 

Sixth.  All  the  residue  of  my  estate  I  give  and  bequeath,  in  four  equal 
shares,  to  my  wife  Helen  Webb,  my  son  George  H.  Webb,  the  above- 
mentioned  Children's  Guardian  Society,  and  my  nephew  James  C.  Katley. 

Seventh.  I  nominate  and  appoint  my  nephew  James  C.  Katley  executor 
of  this  my  last  will  and  testament,  and  direct  that  no  bond  be  required  of 
him  by  reason  of  such  appointment. 

In  Witness  Whereof  I  have  hereunto  set  my  hand  and  seal  at  my 
residence  in  the  City  of  Yonkers  this  30th  day  of  June  in  the  year  one 

thousand  nine  hundred  and . 

Martin  E.  Webb.  (L.S.) 

On  this  30th  day  of  June  in  the  year  one  thousand  nine  hundred  and 
Martin  E.  Webb,  the  above  named  testator,  in  our  presence 


and  in  the  presence  of  each  of  us,  signed  and  sealed  the  foregoing  in- 
strument and  published  and  declared  the  same  to  be  his  last  Will  and 
Testament,  and  we  thereupon  at  his  request,  in  his  presence  and  in  the 
presence  of  each  other,  hereunto  subscribed  our  names  and  residences  as 
a'ttesting  witnesses. 

Samuel  Moore  residing  at  227  Fowler  Avenue,  Yonkers,  New  York. 
Robert  Moore    residing  at    252  Buckingham  Road,  Yonkers,  New  York. 


COMMON  LEGAL  TERMS 

Note:  —  Many  additional  terms  are  defined  in  the  text. 

Abandonment:   In  marine  insurance,  the  giving  up  of  the  property  partly 

destroyed  to  the  insurer,  the  owner's  purpose  being  to  claim  the  full 

amount  of  the  insurance. 
Abrogate:  To  annul  or  destroy;  to  abolish  entirely. 
Acceptance  Supra  Protest:    Acceptance  for  the  protection  of  the  drawer, 

by  a  person  other  than  the  drawee. 
Accommodation  Indorser:    One  who  indorses  a  note  or  draft  without  con- 
sideration, in  order  that  another  may  raise  money  upon  it. 
Accommodation  Paper:   Notes  or  drafts  for  which  no  consideration  passes 

between  the  original  parties. 
Accord  and  Satisfaction:  A  means  of  settling  a  claim  by  compromising  the 

amount  which  is  in  dispute,  or  by  giving  something  else  than  that 

which  was  originally  agreed  upon. 
Acknowledgment:   The  act  by  which  a  party  who  has  executed  an  instru- 
ment declares  or  acknowledges  it  before  a  competent  officer  to  be  his 

or  her  act  or  deed. 
Action:  The  formal  means  of  recovering  one's  rights  in  a  court  of  justice  — 

a  suit  at  law. 
Act  of  God :  An  accident  resulting  from  a  physical  cause  which  is  irresistible, 

such  as  lightning,  floods,  etc. 
Adjudication:  The  act  of  a  court  in  giving  judgment  in  a  suit  at  law. 
Administrator:    One  who  is  appointed  to  take  charge  of  the  property  or 

estate  of  a  person  who  died  without  leaving  a  will. 
Admiralty:   The  court  or  law  dealing  with  controversies  arising  out  of  the 

navigation  of  public  waters. 
Adult:  A  person  twenty-one  or  more  years  of  age.    In  some  states,  a  female 

eighteen  or  more  years  of  age  is  an  adult. 
Adverse  Possession:   Open,  actual,  exclusive,  and  continuous  possession  of 

real  property  under  claim  or   color  of  title,  hostile  to  the  claim  of 

another. 
Afladavit:    A  statement  in  writing,  signed  by  the  person  making  it,  and 

sworn  to  by  him  before  an  officer  authorized  to  take  oaths. 
Age  of  Consent:    The  age  at  which  infants  are  capable  of  entering  into  a 

valid  contract  of  marriage. 
Agistor  or  Agister :  One  who  takes  cattle  to  pasture  for  hire. 
Alias:  A  Latin  word  meaning  otherwise  or  hitherto. 
Alien:    One  owing  allegiance  to  another  country;   usually  a  foreign-born 

resident  of  a  country  in  which  he  is  not  a  citizen. 

391 


392  COMMON  LEGAL  TERMS 

Alien  Enemy:   An  alien  who  is  the  subject  of  a  country  at  war  with  the 

country  in  which  he  then  lives. 
Alienate:  To  convey  the  title  to  property. 
Alimony:   An  allowance  made  by  order  of  a  court  to  a  woman  out  of  the 

property  of  him  who  is  or  was  her  husband,  on  legal  separation  or 

divorce,  or  during  a  suit  for  it. 
Aliunde:  From  another  source;  outside  evidence;  a.s,  a,  csise  proved  aliunde. 
Allonge:    A  paper  attached  to  a  bill  or  note  for  indorsements  which  the 

original  paper  will  not  hold. 
Annuity:  An  amount  payable  yearly. 
Annulment :  The  act  of  making  void. 
Anomalous  Indorsement:   An  irregular  indorsement. 
Ante-dated:  Bearing  a  date  earlier  than  the  actual  date. 
Appurtenance:    In  a  deed  or  lease,  anything  that  will  go  with  the  land, 

as  a  right  of  way. 
Arbitration:   The  hearing  and  determining  of  a  cause  in  controversy  by  a 

person  or  persons  either  chosen  by  the  parties  involved  or  appointed 

by  some  authority. 
Articles  of  Copartnership :   The  written  agreement  by  which  a  partnership 

is  formed. 
Attachment:   The  seizure  of  property  by  legal  process. 
Attestation:   Signing  an  instrument  as  a  witness. 
Attorney  in  Fact:  An  agent  appointed  by  power  of  attorney. 
Award:  The  decision  of  arbitrators. 
Barter:  The  exchange  of  articles  of  personal  property:  distinguished  from  a 

sale,  in  which  property  is  sold  for  money. 
Beneficiary:  The  person  who  is  entitled  to  the  benefits  of  a  contract  or  of  an 

estate  held  by  another. 
Bequeath:  To  give  property  by  will;  especially,  to  give  personal  property 

,  by  will. 
Bilateral  Contract:   A  kind  of  contract  in  which  an  offer  in  the  form  of  a 

promise  is  accepted  by  a  promise. 
Bill  of  Lading:  A  document  given  by  a  carrier  to  a  shipper;  it  is  both  a 

receipt  and  a  contract. 
Bona  Fide:  In  good  faith.   Openly  and  without  deceit  or  fraud. 
Bond:   A  sealed  instrument  by  which  one  party  agrees  to  pay  another  a 

certain  sum  or  to  perform  a  certain  act. 
Breach:  In  the  law  of  contracts  the  violation  of  an  agreement  or  obligation. 
By-laws:   The  regulations  made  by  a  corporation  for  its  own  government. 
Caveat  Emptor:  "Let  the  buyer  beware";  a  rule  which  excludes  or  weakens 

the  implied  warranty  of  goods  which  are  before  the  buyer  and  open  to 

his  examination. 
Certificate  of  Deposit:  A  certificate  issued  by  a  bank,  certifying  to  the  de- 
posit of  a  stated  sum  of  money  payable  to  order  or  bearer. 
Cestui  Que  Trust:  One  for  whose  benefit  property  is  held  by  a  trustee. 


COMMON  LEGAL  TERMS  393 

Chancery:  In  the  United  States  a  court  of  equity;  a  court  of  records  or 
office  of  public  records. 

Charter:  (i)  A  formal  instrument  by  which  a  government  creates  a  cor- 
poration or  grants  special  rights  or  privileges  to  a  particular  person  or 
persons.    (2)  To  hire  or  let  a  vessel  or  part  of  it. 

Charter  Party:  The  written  instrument  by  which  the  owner  of  a  vessel  lets 
it,  or  a  part  of  it,  to  another. 

Chattel:  An  article  of  personal  property. 

Chose  in  Action:  A  thing,  the  possession  of  which  one  has  a  right  to  demand 
by  action  at  law. 

Chose  in  Possession:  Personal  property  of  which  one  has  the  actual  pos- 
session. 

Client:  A  person  who  employs  an  attorney  to  act  for  him  in  any  legal  busi- 
ness. 

Code:  Any  systematic  body  of  law  having  statutory  force. 

Collateral  Security:  Property,  especially  stocks  and  bonds,  deposited  as  a 
pledge  to  guarantee  the  payment  of  a  promissory  note. 

Complainant:  The  person  who  brings  an  action  at  law;  the  plaintiff. 

Complaint:  A  formal  statement  of  a  charge  or  cause  of  action  against  a 
person  named  therein. 

Compromise:  To  reach  a  settlement  by  mutual  concessions. 

Concurrent:   Existing  at  the  same  time. 

Condition  Precedent:  A  condition  in  an  agreement  requiring  some  act  to  be 
performed  by  one  person  before  another  is  liable. 

Condition  Subsequent:  A  part  of  an  agreement  relating  to  a  future  event, 
upon  the  happening  of  which  the  obligation  is  no  longer  binding  upon 
one  of  the  parties  to  a  contract. 

Consanguinity:    Relationship  by  blood. 

Consignee:  A  person  to  whom  goods  are  shipped. 

Consignor:   A  person  shipping  goods. 

Counterclaim:  A  claim  existing  in  favor  of  a  defendant. 

Covenant:  Any  promise  contained  in  a  sealed  instrument. 

Coverture :  The  legal  status  of  a  married  woman. 

Curtesy:  The  estate  a  man  has  in  the  lands  of  his  wife  uppn  her  death,  in 
case  a  living  child  has  been  born  to  them  during  their  marriage. 

Customs:  The  established  habits  of  a  trade  or  business  which  will  be  consid- 
ered by  a  court  as  applying  to  a  contract  in  such  trade  or  business. 

Declaration:  A  formal  statement  of  the  facts  on  which  a  cause  of  action  is 
based;  a  complaint. 

Decree:  The  judgment  or  decision  of  a  court  of  equity. 

De  Facto:  In  fact,  actually. 

Default:   Omission;  neglect  or  failure. 

Del  Credere  Agent:  An  agent  who  guarantees  that  the  persons  to  whom 
he  sells  will  perform  the  contracts  he  makes  with  them. 

Demise:  A  conveyance  of  an  estate  in  real  property  for  life  or  for  years. 


394  COMMON  LEGAL  TERMS 

Demurrer:  A  pleading  by  the  defendant  to  an  action,  claiming  that  even  if 

all  the  plaintiff  sets  forth  in   his  complaint   is  true,   still   he  is  not 

entitled  to  recover. 
Deponent:   One  who  makes  oath  as  to  the  truth  of  a  written  statement. 
Devise:   To  grant  real  property  by  will. 

Disability:  Want  of  qualification;  incapacity  to  do  a  legal  act. 
Disaffirm:   To  repudiate. 
Domicile:   A  person's  legal  residence;  his  permanent  home  to  which  he 

intends  to  return  if  absent  from  it. 
Duress:   Personal  restraint  or  compulsion. 
Earnest:   Formerly  money  paid  to  bind  a  bargain;  now,  a  part  of  the  price 

named  in  a  contract  paid  by  the  vendee  at  the  time  the  bargain  is  made. 
Easement:  The  right  one  person  has  to  use  the  land  of  another  for  a 

particular  purpose. 
Embezzlement:   Appropriating  to  one's  own  use  money  intrusted  to  one's 

custody. 
Emblements:  Growing  crops  of  any  kind  produced  by  expense  and  labor. 
Eminent  Domain:  The  right  of  the  sovereign  power  to  take  private  property 

for  public  purposes. 
Enact:  To  make  a  law,  or  to  establish  by  law. 
Equity  (Chancery) :   A  system  of  courts  granting  extraordinary  relief  when 

the  remedies  at  law  are  not  adequate. 
Equity  of  Redemption:    The  right  which  a  mortgagor  has  to  redeem  his 

estate  after  he  is  in  default  on  the  mortgage. 
Escheat:   The  reversion  of  land  to  the  state  upon  the  death  of  the  owner 

without  lawful  heirs. 
Escrow:  A  deed  or  bond  delivered  to  a  third  party  to  be  held  and  delivered 

to  the  grantee  or  creditor  upon  the  performance  of  some  condition. 
Estate:  An  interest  in  property. 

Estoppel:  A  rule  of  law  which  stops  a  man  from  asserting  a  fact  or  claim. 
Eviction:  The  dispossession  of  a  person  by  process  of  law  from  land  which 

he  has  previously  held. 
Execution:    (i)  A  judicial  writ  directing  the  enforcement  of  a  judgment. 

(2)  The  act  of  signing  and  sealing  a  written  instrument. 
Executor:  A  person  named  in  a  will  to  carry  out  its  provisions. 
Exemption  Laws:  Laws  under  which  a  judgment  debtor  may  hold  certain 

articles  exempt  from  levy  and  sale. 
Ex  Post  Facto  Law:   A  law  which  makes  criminal  an  act  which  was  done 

previously  and  which  when  done  was  not  a  crime. 
Extradition:    The  surrender  by  one  government  to  another  of  a  person 

charged  with  a  crime. 
Foreclosure :  The  process  of  enforcing  a  lien  against  property. 
Forgery:  The  fraudulent  making,  signing,  or  altering  of  a  written  instru- 
ment. 
Franchise:  A  privilege  or  right  conferred  by  governing  authority. 


COMMON  LEGAL  TERMS  395 

Garnishment :  The  process  by  which  a  person  owing  money  to  the  defendant 

in  a  case  may  be  compelled  to  pay  it  in  to  the  court  to  satisfy  a  claim 

against  the  defendant. 
Good  Will:   A  property  right  attaching  to  a  business  and  arising  from  its 

established  trade  and  reputation. 
Hereditament:  Any  species  of  property  that  may  be  inherited. 
Inchoate:   Commenced,  but  not  completed;  imperfect. 
Incorporeal:  Intangible;  existing  only  in  contemplation  of  law,  as  a  franchise 

or  right  of  way. 
Incumbrance:  A  burden  or  lien  upon  property. 
Indemnity :  A  compensation  for  damages  suffered. 
Indenture:  A  deed  or  sealed  agreement. 
In  Esse:  In  existence. 

Insolvency:  State  of  being  unable  to  pay  one's  debts. 
In  Statu  Quo :  In  the  same  state  or  condition  as  before. 
Inter  Vivos:   Between  the  living. 
Intestate:  One  who  dies  without  making  a  will. 
Invalid:  Of  no  legal  force. 
Issue:  Offspring;  in  real  property  law,  all  persons  who  have  descended  from 

a  common  ancestor. 
Judgment:   The  final  determination  by  a  court  of  the  rights  of  the  parties 

in  an  action. 
Jurat:   The  certificate  at  the  end  of  an  affidavit  showing  when  and  before 

whom  it  is  verified  (sworn  to). 
Jurisdiction:  The  legal  authority  of  a  court. 

Lease:  A  contract  granting  the  possession  and  use  of  real  property. 
Legacy:  A  gift  by  will. 
Legal  Tender:    Those  kinds  of  money  which  a  creditor  must  accept  as  a 

valid  offer  of  payment. 
Lessee:  A  person  holding  real  property  under  lease;  a  tenant. 
Lessor:  A  person  who  has  leased  real  property  to  another;  a  landlord. 
Letters  of  Administration:    An  instrument  issued  by  the  court  having 

jurisdiction,  granting  power  to  settle  the  estate  of  one  dying  without 

leaving  a  will. 
Letters  Testamentary :   An  instrument  issued  by  the  court  having  jurisdic- 
tion, granting  power  to  the  person  named  as  executor  in  a  will  to  carry 

out  the  provisions  of  the  will. 
Levy:  Taking  legal  possession  of  chattels  by  an  officer  of  the  law,  under  a 

writ  of  execution. 
Lien:   A  right  a  person  has  against  the  property  of  another  by  way  of 

security  for  a  debt. 
Liquidated  Damages:   The  sum  of  money  agreed  upon  in  advance  by  the 

parties  to  a  contract,  to  be  paid  in  case  of  breach. 
Litigation:  A  suit  at  law. 
L.  S.r  Locus  sigilli,  meaning  "the  place  of  the  seal." 


396  COMMON  LEGAL  TERMS 

Mandamus:  A  writ  issued  by  a  superior  court  to  an  inferior  court  or  to  an 
officer,  commanding  something  to  be  done. 

Maturity:  The  time  at  which  a  negotiable  instrument  is  legally  due. 

Merger:  The  absorption  or  extinguishment  of  one  thing  in  another;  as  of 
contracts  or  corporations. 

Nominal  Damages:  Those  given  for  the  violation  of  a  right  from  which  no 
actual  loss  has  resulted. 

Non  Compos  Mentis:  Not  of  sound  mind. 

Non-suit:  The  name  of  a  judgment  given  against  a  plaintiff  when  he  is 
unable  to  prove  his  case. 

Ordinance :  An  act  or  law  passed  by  a  municipality. 

Outlawed:  Uncollectible  because  too  old.  A  debt  is  outlawed  when  it  is 
barred  by  the  Statute  of  Limitations. 

Par:  Face  value.  Bills  of  exchange,  bonds,  and  stocks  are  at  par  when 
they  sell  for  their  face  value. 

Paramoimt  Title :  The  title  to  property  which  will  prevail  when  a  dispute 
as  to  ownership  arises. 

Parol  Contract:  Any  contract  not  under  seal ;  usually,  an  oral  contract. 

Perjury:  A  willfully  false  statement  made  by  a  witness  in  judicial  proceed- 
ings. 

Per  Se:  In  or  by  itself;  essentially.  For  example,  an  act  which  is  not 
negligent  per  se  may  be  negligent  under  certain  circumstances. 

Plaintiff:  The  person  who  brings  an  action  at  law;  the  complainant. 

Post-dated:  Bearing  a  date  subsequent  to  the  true  date. 

Probate:  The  act  or  process  of  proving  a  will. 

Prima  Facie:  At  the  first  appearance.  Prima  facie  evidence  is  that  which  is 
sufficient  to  establish  a  fact  unless  it  be  controverted. 

Prosecute:  To  proceed  against  by  legal  measures. 

Protest:  A  formal  declaration  in  writing  by  a  notary  public  of  the  demand 
and  refusal  to  pay  a  note  or  bill. 

Proxy:  (i)  One  who  represents  another.  (2)  A  writing  by  which  one  au- 
thorizes another  to  vote  in  his  place. 

Quantum  Meruit:  As  much  as  he  deserved. 

Quantum  Valebat:  Whatever  it  was  worth. 

Quasi:  As  if;  corresponding  to. 

Quitclaim  Deed:  A  form  of  deed  in  the  nature  of  a  release,  granting  what- 
ever interest  the  grantor  has  or  may  have. 

Ratification:  Approval;  giving  force  to  a  contract  which  otherwise  is  not 
binding. 

Receiver:  A  person  appointed  to  hold  and  manage  property  in  dispute,  the 
property  of  an  insolvent,  or  the  property  of  a  dissolved  corporation. 

Recoupment:  A  reduction  in  amount  of  damages  on  account  of  a  breach  of 
warranty  or  defects  in  performance. 

Release:  An  instrument  by  which  some  claim  or  interest  is  surrendered  to 
another  person. 


COMMON  LEGAL  TERMS  ^.  397 

Remainder:  An  estate  in  real  property  to  take  effect  after  another's  estate  is 

terminated. 
Replevin:   An  action  to  recover  the  possession  of  goods  wrongfully  taken 

and  retained. 
Rescission:    The  annulling  or  dissolution  of  a  contract  either  by  mutual 

consent  or  by  one  party. 
Residuary  Legatee :  The  person  named  in  a  will  who  has  the  residue  of  the 

property  after  the  payment  of  the  other  legacies  specially  mentioned  in 

the  will.    Sometimes  the  words  legacy  and  legatee  are  restricted  to 

personal  property;  then  devise  and  devisee  are  used  for  real  property. 
Severance:  The  removal  of  fixtures  from  the  land. 
Specialty:  A  contract  under  seal. 

Specific  Performance:   Performance  of  a  contract  according  to  its  terms. 
SS.:  Abbreviation  for  the  Latin  word  sctlicet,  meaning  to  wit;  that  is  to 

say. 
Status:  Standing  state,  or  condition. 
Statute :  A  law  made  by  a  legislature.  ♦ 

Statute  of  Frauds:    An  English  statute,  reenacted  in  varying  form  in  the 

different  states,  requiring  certain  contracts  to  be  evidenced  by  a  written 

memorandum  in  order  to  be  enforceable. 
Statute  of  Limitations:    A  statute  barring  action  unless  begun  within  a 

certain  time  after  the  debt  is  due  and  payable. 
Subcontract:  A  contract  made  by  one  who  has  contracted  to  perform  labor 

or  services,  for  the  performance  of  all  or  part  of  such  labor  or  services  by 

another. 
Subpoena:  A  writ  commanding  the  attendance  of  a  person  to  testify  as  a 

witness  in  court. 
Subrogation:  The  substitution  of  one  person  or  thing  in  the  place  of  another, 

particularly  the  substitution  of  one  person  in  place  of  another  as  a  cred- 
itor, with  a  succession  to  the  rights  of  the  latter. 
Survivorship :  The  right  of  the  survivor  or  survivors,  of  two  or  more  persons 

having  joint  interest  in  an  estate  or  other  property,  to  take  the  interest 

of  any  of  the  number  dying. 
Testator:   A  person  who  makes  a  will. 
Tort:  A  private  wrong  or  injury,  other  than  that  arising  from  the  breach  of 

a  contract,  for  which  damages  can  be  collected. 
Trespass:    Any  wrongful  act  by  one  person  whereby  another  is  injured; 

especially,  unlawful  entry  upon  the  land  of  another. 
Uberrima  Fides:  The  most  perfect  good  faith. 
Ultra  Vires:  Beyond  power.  The  acts  of  a  corporation  beyond  the  scope  of 

its  powers  are  acts  ultra  vires. 
Underwriter:  Insurer. 
Unilateral  Contract:  A  contract  in  which  an  offer  in  the  form  of  a  promise 

is  accepted  by  an  act. 
Usury:  Illegal  interest. 


398  COMMON  LEGAL  TERMS  | 

Venue :  The  place  in  which  an  event  occurs.  ] 
Vested:  Already  in  force.  \ 
Waiver:  The  abandonment  of  a  right,  or  a  refusal  to  accept  it.  j 
Ward:  A  minor  under  guardianship.  ] 
Wharfinger:  One  who  keeps  a  wharf  for  hire  for  the  purpose  of  receiving  j 
and  shipping  goods.  ! 
Writ:  An  instrument  issued  from  a  court,  requiring  or  authorizing  the  per- 
formance of  an  act.  i 


INDEX 


Absolute  defenses,  177-180. 
Abstract  of  title,  271. 
Acceptance  of  bills  of  exchange,  156- 
158. 

acceptance  for  honor,  157. 

acceptance  supra  protest,  157. 
Acceptance  of  guaranty,  196. 
Acceptance  of  offers,  22-26. 

reality  of  consent,  26-33. 
x\cceptor  of  a  bill  of  exchange,  156. 
Accident  insurance,  253. 
Accommodation  party,  172. 
Accord  and  satisfaction,  44. 
Acknowledgment,  275;  form,  381-382. 
Act  of  God,  defined,  224. 
Action,  or  suit,  in  a  court,  361. 
Administrator,  promise  to  pay  debts  of 

the  estate,  52,  54. 
Adverse  possession,  271. 
Affirmance  of  contracts,  16-17. 
Agency,  119-141;  defined,  119. 

coupled  with  an  interest,  137. 

how  created,  122-125. 

liability    of    principal    for    torts    of 
agent,  134-146. 

obligation  of  agent,  1 27-131,  132. 

obligation  of  principal,  125-127,  132. 

obligation  of  third  party,  132-134- 

termination  of ,  136-139. 
Agent,  119-141;   defined,  119. 

cannot  contract  with  himself,  14. 

compensation  of,  125-126. 

del  credere,  121. 

fraud  of,  134-135. 

general,  119. 

gratuitous,  130-131. 

how  appointed,  122-125. 

implied  warranty  of  authority,  133. 

maHcious  wrongs  or  crimes  of,  135. 

must  not  use  position  for  his  benefit, 

x29. 

must  obey  instructions,  127, 
must  use  judgment,  128. 


Agent  (cofUinued). 
notice  to,  132. 

obligation  to  principal,  127-131. 
obligation  to  third  party,  132. 
of  infant,  17. 
public,  120. 
signature  of,  153. 
special,    120;  form  of  appointment, 

383. 

subagents,  129-130. 

termination  of  agency,  136-139. 

torts  of,  134-136. 
Alien,  20;  contracts  of,  20. 
Alienation  clause  in  fire  insurance,  243. 
Alteration,  of  negotiable  instruments, 
178. 

of  written  instruments,  62-63. 
Anomalous  indorser,  172. 
Answer,  in  an  action,  362. 
Anti-trust  laws,  377-379. 
Appeal,  366. 

Appellate  jurisdiction,  355. 
Appurtenances,  defined,  273. 
Articles  of  copartnership,  302. 

form,  384. 
Articles  of  incorporation,  331. 
Assignability,  163-164. 
Assignment,  of  contracts,  49-51;  form, 
382. 

of  fire  insurance  policy,  243,  244. 

of  lease,  286. 

of  mortgage,  281. 
Assumption  of  risk,  379. 
Attachment,  writ  of,  367. 
Attorney,  121;  see  Agent. 
Auction  sales,  109-110. 
Automobile  insurance,  255-256. 

Baggage,  of  passengers,  230-231. 
Bailee,  defined,  204. 

liability  of,  206,  207. 

responsibility  of,  205,  208,  210,  212- 
213,  214,  218,  223-228. 


399 


400 


INDEX 


Bailment,  204-232;  defined,  204. 

common  carriers,  220-231. 

degrees  of  care,   205,   208,  210,  212- 
213,  214. 

distinguished  from  sale,  86-87. 

for  bailee's  sole  benefit,  209-211. 

for  bailor's  sole  benefit,  207-209. 

for  hire,  212-214. 

for  mutual  benefit,  21 1-2 17. 

gratuitous,  207-211. 

innkeepers,  218-220. 

tortious,  206. 
Bailor,  defined,  204. 
Bank  drafts,  154-155;  form,  384. 
Banking  credit,  184. 
Bankruptcy,  348-353. 

acts  of,  349-350. 

discharge  in,  352. 

duties  of  the  bankrupt,  351. 

effect  on  agency,  138. 

laws,  348. 

reason     for     stoppage    in     transitu, 
107-108. 

trustee  or  receiver,  350-351. 
Barter,  85. 

Beneficiary  of  life  insurance,  246,  247. 
Bets,  unlawful,  35. 
Bilateral  contract,  13. 
Bill  of  exchange,  154-158;  defined,  154. 
.  acceptance  of,  156-158. 

defenses,  175-180. 

discharge,  180-182. 

essential  conditions,  146-15 1. 

foreign,  inland,  and  domestic,  155. 

forms,  384. 

negotiation,  163-174. 

special  forms  of,  161,  162. 
Bill  of  lading,  defined,  224. 

order  bill  of  lading,  161. 
Bills  of  Lading  Act,  85,  377. 
BiU  of  sale,  94;  form,  382. 
Blank  indorsement,  165. 
Boarding-house  keepers,  218,  220. 
Bonds,  162-163. 
Borrowing,  209-211. 
Breach  of  contracts,  63-66. 

damages  for,  66-69. 

discharge  of  right  of  action,  69-71. 

remedies  for  breach  of  sale  contract, 
105-109. 


Breach  of  warranty,  108-109. 

Broker,  121;  ^ee  Agent. 

Burglary  insurance,  255. 

Business  credit,  184. 

Buyer,  remedies  for  breach,  108-109. 

By-bidding,  109. 

By-laws  of  a  corporation,  330. 

Care,  degrees  of,  205. 

Carrier,  see  Common  carrier. 

Cases,  manner  of  citation,  16. 

Cashier's  check,  161. 

Casualty  insurance,  253-256. 

Caveat  emptor,  102-103. 

Certificate  of  deposit,  161. 

Certified  checks,  159. 

Cestui  que  trust,  269. 

Chancery  courts,  4,  355,  359. 

Charter  of  a  corporation,  332,  341-342. 

Chattel  mortgage,  99;  form,  388. 

Check,  158-160;  defined,  158. 

certified,  159. 

defenses,  175-180. 

discharge,  180-182. 

does  not  discharge  contract,  58. 

essential  conditions,  146-151. 

form,  383. 

must    be   presented   without   delay, 

159- 

negotiation,  163-174. 

special  forms,  161. 
Choses  in  action,  293. 
Circuit  court,  state,  359. 
Circuit  Court  of  Appeals,  357. 
Citations,  16. 
Civil  courts,  355. 
Civil  law,  4,  5. 
Clayton  Act,  378. 
C.O.D.  shipments,  93. 
Coinsurance  clause,  257. 
Collateral  note,  162. 
Collateral  security,  215. 
Commercial  law,  defined,  5. 
Commission    merchant,    89,     121;     see 

Agent. 
Common  carriers,  220-231;  defined,  220. 

charges  of,  221,  229. 

delivery  by,  227-228. 

liability  for  baggage,  230-231. 

liability  of,  223-228,  229-231. 


INDEX 


401 


Common  carriers  (continued). 
of  passengers,  229-231. 
regulation  of,  221,  222-223,  229,  376. 
right  to  refuse  goods,  221. 

right  to  refuse  passengers,  229. 
Common  law,  3-4,  5. 
Common  law  courts,  355-356. 
Common  stock,  336,  335. 
Complaint,  in  an  action,  362. 
Compromise  with  creditors,  45,  353. 
Concealment    of    facts    in    insurance, 

240,  248. 
Conditional  sales,  97-100. 
Conditions,  kinds  of,  103. 
Consent  in  contracts,  22-33. 
Consideration,  39-46. 

compromise  with  creditors,  45. 

effect  of  seal,  39. 

for  discharge  of  a  debt,  42. 

for  extension  of  time,  45. 

for  gift,  41. 

for  subscriptions,  46. 

good,  45-46. 

in  executed  contract,  41. 

in  negotiable  instruments,  176. 

may  be  a  promise,  42. 

moral  obligations,  45-46. 

must  be  legal,  40. 

must  be  possible,  40. 

must  be  present  or  future,  41. 

must  have  value,  39. 

settlement  to  avoid  litigation,  44. 

valuable,  defined,  45. 
Constitutional  law,  defined,  3. 
Contingent  fee,  defined,  37. 
Continuous  succession,  330. 
Contracts,  11-74;  defined,  11,  71. 

affirmance  of,  16-17. 

against  public  policy,  36-38. 

assignment  of  49-51;  form,  382. 

bilateral,  13. 

breach  of,  63-71. 

consideration  in,  39-46. 

disaffirmance  of,  17. 

discharge  of,  57-66,  73. 

divisible  and  entire,  13,  65-66. 

elements  in,  14. 

executed,  12-13. 

executory,  13. 

express,  11. 


Contracts  {continued). 

formal,  12. 

forms,  381. 

fraudulent,  29-32. 

implied,  12. 

installment,  13,  65-66. 

kinds  of,  11-13. 

not  to  be  performed  within  one  year, 
53,  55-56. 

of  aHens,  20. 

of  idiots,  20. 

of  infants,  15-19. 

of  insane  persons,  19. 

of  married  women,  20. 

offer  and  acceptance,  22-26. 

operation  of,  48-51. 

oral,  II. 

parties  to,  14-20,  48-51. 

required  to  be  written,  52-56,  94-97. 

restraint  of  trade,  37-38. 

rights  of  third  parties,  48. 

satisfactory  performance,  58-59. 

simple,  12;  form,  381. 

Statute  of  Frauds,  52-56,  94-97. 

subject  matter  of,  34-38,  91. 

substantial  performance,  58,  59. 

Sunday,  36. 

telephone,  46. 

to  sell,  85,  90-94;  defined,  85; 
remedies  for  breach,  105-109 ;  when 
required  to  be  in  writing,  94-97. 

uberrima  fides,  29. 
unilateral,  13. 
unlawful,  34-38. 
void,  15,  28,  34-38. 
voidable,  15,  29-33. 
written,  11,  52-56,  94-97. 
Contributory  neghgence,  127,  379. 
Copartnership,  see  Partnership. 
Corporations,  328-345;  defined,  328. 
anti-trust  laws,  377-379. 
by-laws,  330. 
charter,  332,  341-342. 
common  and  preferred  stock,  336, 335, 
creditors  of,  339. 
directors,  338-339- 
dissolution  of,  341-343. 
distinct  from  members,  328. 
dividends,  336. 
formation  of,  331. 


402 


INDEX 


Corporations  {contimied). 

incorporation,  331, 

liability  for  acts  of  agents,  334. 

management  of,  338. 

membership  in,  335-337- 

municipal,  329. 

name  and  continuous  succession,  330. 

powers,  330,  332-334. 

private,  329,  330-345- 

remedies  against,  339. 

stockholders,  335-337;  see  Stock,  etc. 

^dtra  vires  acts,  334. 
CorpKjreal  real  property,  263. 
Costs,  in  an  action,  365. 
Counterclaim,  362-363. 
Counterfeit  money  not  payment,  60. 
County  Court,  359. 
Coupon  bonds,  163. 
Court  of  Appeals,  359. 
Court  of  Claims,  358;  state,  360. 
Courts,  354-365- 

federal  courts,  356-358. 

jurisdiction  of,  354-356. 

of  record,  355. 

pleading  and  practice,  361-365. 

state  courts,  358-360. 
Courts  of  record,  355. 
Covenants,  in  a  deed,  273-277. 

in  a  lease,  283-285. 

in  a  mortgage,  280. 
Coverture,  estate  during,  267. 
Credit  insurance,  254. 
Creditors,  compromise  with,  45,  353. 
Credits,  184-186. 
Crime,  defined,  4. 
Criminal  law,  4,  5. 
Criminal  courts,  355. 
Crops,  real  or  personal  property,  266. 
Curtesy,  267. 

Damages,  66-69. 

amount  allowed,  68. 

liquidated,  68. 
Days  of  grace,  169. 
Death.,  effect  on  contracts,  51. 

terminates  agency,  138. 

terminates  guaranty,  198. 

terminates  partnership,  317. 
Debenture  bonds,  163. 
Declaration,  in  an  action.  362. 


Deed,  271-278. 

of  trust,  282. 

quitclaim,  277. 

recording,  274. 

requirements  of,  271-273. 

warranty,  275;  form,  386. 
Defeasance  clause,  mortgage,  280. 
Defendant,  defined,  4,  5,  361. 
Deficiency  judgment,  281. 
Del  credere  agents,  121. 
Delivery,  in  sale,  86. 

of  deed,  274. 

of  negotiable  instruments,  176-177. 
Demand,  negotiable  instruments,  168- 

170. 
Demurrer,  in  an  action,  363. 
Deposition,  364. 
Devise,  defined,  278. 
Directors  of  corporations,  338-339. 
Disaffirmance  of  contracts,  17. 
Discharge  in  bankruptcy,  352. 
Discharge  of  contracts,  57-66,  73. 

by  agreement,  57. 

by  alteration   of   a   written   instru- 
ment, 62. 

by  breach,  63-66. 

by  impossibility  of  performance,  61. 

by  operation  of  law,  62. 

by  performance,  57-61. 
Discharge    of    negotiable    instruments, 

180-182. 
Discharge  of  right  of  action,  69-71. 
Discount  loans,  185. 
Dishonor,  notice  of,  170-172. 

of  bill  of  exchange,  157. 

of  negotiable  instruments,  170-172. 
Dissolution,  of  corporation,  341-343. 

of  partnership,  3 1 5-3  20. 
District  Court,  357;  state,  359. 
Dividends  of  a  corporation,  336. 
Divisible  contract,  13,  65-66. 
Dormant  partner,  305. 
Dower,  267. 

Draft,  see  Bill  of  Exchange. 
Drawee  of  a  bill  of  exchange,  154. 
Drawer  of  a  bill  of  exchange,  154. 

liability  of,  157,  158,  170-172. 
Duress,  defined,  32. 

effect  on  contracts,  32. 

in  negotiable  instruments,  176. 


INDEX 


403 


Earnest  payment,  95. 

Easement,  263. 

Elevator  insurance,  255. 

Elkins  Act,  377. 

Emblements,  266. 

Eminent  domain,  10,  264. 

Employees,  rights  of,  127,  379-380. 

Employers'  liability,  127,  379. 

Employers'  liability  insurance,  254,  380. 

Entire  contract,  13,  65-66. 

Equitable  estates,  269. 

Equity,  4,  355-356- 

Equity  of  redemption,  279. 

Escrow,  delivery  in,  274. 

Estates  in  land,  263-269,  283. 

by  marriage,  267. 

equitable,  269. 

for  years,  283-287. 

in  fee  simple,  264. 

in  remainder  and  reversion,  267. 

in  severalty,  269. 

joint,  269. 

life,  265-266. 
Estoppel,  defined,  303. 
Eviction,  286. 
Evidence,  in  a  trial,  364. 
Executed  contract,  12. 
Execution,  writ  issued  by  a  court,  365. 
Executor,  promise  to  pay  debts  of  the 

estate,  52,  54. 
Executory  contract,  13. 
Exemption  laws,  353,  365. 
Express  company,    220;  see   Common 

carrier. 
Express  contract,  11. 
Express  warranty,  loi. 

Factor,  89,  121;  see  Agent. 
Federal  courts,  356-358. 
Federal  Reserve  Act,  185. 
Federal  Reserve  Board,  186. 
Federal  Reserve  notes,  186. 
Federal  Trade  Commission,  379. 
Fee  simple,  estate  in,  264. 
Feudal  system,  264. 
FeUow  servant  doctrine,  379. 
Felony,  defined,  359. 
Fidelity  insurance,  196,  252. 
Fiduciary  relation,  defined,  1 28. 
Fire,  loss  by,  defined,  242. 


Fire  insurance,  238-245. 

amount  recoverable,  243. 

lightning  clause,  242. 

mortgaged  property,  239,  245. 

notice  of  loss,  245. 

policy,    241-245;    assignment,    243- 
244. 

pro  rata  clause,  245. 

unoccupied  dwelling,  244. 
Firm,  defined,  302. 
Fixtures,    293-300;     rules   concerning, 

294-298. 
F.O.B.  shipments,  93. 
Foreclosure,  of  chattel  mortgage,  99. 

of  mortgage,  281. 
Foreign  bill  of  exchange,  155. 
Forgery  of  negotiable  instruments,  179. 
Formal  contract,  12;  form,  381. 
Forms  of  contracts,  etc.,  381-390. 
Fraud,  29-32;  defined,  29. 

by  agent,  134-135- 

effect  on  title,  88. 

in  fire  insurance,  240. 

in  marine  insurance,  251. 

in  negotiable  instruments,  176,  178. 
Frauds,  Statute  of,  52-56,  94-97. 
Freehold,  288. 
Freight  charges,  221. 
Full  indorsement,  165. 
Future  goods,  91,  92. 

Garnishment,  367. 

General  agent,  119. 

General  average,  253. 

General  partner,  304. 

Gifts,  41-42. 

God,  act  of,  defined,  254. 

Good  consideration,  45-46. 

Good  will,  defined,  309. 

Gratuitous  agent,  122,  130-131. 

Gratuitous  bailment,  207-211. 

Guarantor,  194. 

discharge  of,  196-198. 

liability  of,  198. 

rights  of,  199. 
Guaranty,    194-201,    52,    54-55;     de- 
fined, 194. 

compared  with  suretyship,  199. 

of  collection  and  of  payment,  195. 

revocation  of,  198. 


404 


INDEX 


Guaranty  insurance,  196. 
Guests,  of  innkeeper,  218. 

Habendum,  in  a  deed,  273. 

Health  insurance,  255. 

Hired  service  about  a  chattel,  212. 

Hired  use  of  a  chattel,  214. 

Holder  in  due  course,  1 73-1 74. 

Homestead  right,  268. 

Hotel  keepers,  218-220. 

Ice,  ownership  of,  262. 

Idiots,  20;  contracts  of,  20. 

Illegal  object  of  contract,  34-36. 

Implied  contract,  12. 

Implied  partnership,  303,  305-307. 

Implied  warranty,  101-105. 

Impossibihties,  contracts  requiring,  40, 

61. 
Incorporation,  331. 
Incorporeal  real  property,  263. 
Incumbrances  to  title  of  real  estate,  276. 
Indemnity,  contract  of,  194. 
Indorsements,  kinds  of,  165-166. 

where  and  how  made,  167. 
Indorser,  167 

discharge  of,  182. 

irregular,  172. 

liability  of,  168, 170-172. 

notice  to,  171. 

obligation  of,  167. 

payment  by,  181. 
Infants,  15. 

agents  of,  17. 

contracts  of,  15-19. 

liable  for  torts,  19. 

negotiable  instruments  of,  178. 
Inheritance,  defined,  278. 
Injunction,  67,  353. 
Inland  bill  of  exchange,  155. 
Innkeepers,  218-220. 

liability, of,  218-219. 

lien  of,  219-220. 
Insane  persons,  20;  contracts  of,  19-20. 
Insolvency,  defined,  107,  348. 

reason  for  stoppage  in  transitu,  107- 
108. 
Installment  contracts,  13,  65-66,  97. 
Installment  sales,  97. 
Insurable  interest,  239,  246-247,  250. 


Insurance.  238-258;  defined,  238. 

accident,  253. 

automobile,  255-256. 

burglary,  255. 

casualty,  253-256. 

credit,  254. 

elevator,  255. 

employers'  liability,  254,  380. 

fidelity,  254. 

fire,  238-245. 

guaranty,  196. 

health,  255. 

insurable  interest,  239,  246-247,  250. 

life,  246-250. 

marine,  250-253. 

plate  glass,  255. 

steam  boiler,  255. 

title,  254. 
Insurance  companies,  238,  256. 
Interest,  182-182;  defined,  182. 

compound,  183. 

legal,  182. 

on  negotiable  instruments,  177. 

on  notes,  151. 

on  what  claims  allowed,  183. 

usury,  183. 
International  law,  2. 
Interstate  Commerce  Act,  221,  222-223, 

376. 
Intestate,  defined,  278. 
Involuntary  bankrupt,  349. 
Irregular  indorser,  172. 

Joint  and  several  note,  152-153. 

Joint  estates,  269. 

Joint  liability,  49. 

Joint  note,  152-153. 

Joint  stock  companies,  343-344. 

Joint  tenancy,  9,  269. 

Judgment,  in  an  action,  69,  364-365. 

deficiency,  281. 
Judgment  note,  162. 
Jurisdiction  of  courts,  354-356. 
Jury,  363-364. 
Justice  Court,  358. 

Lakes,  ownership  of,  262. 
Land,  see  Real  property. 
Land  contract,  53,  55,  271. 
Landlord  and  tenant,  283-287. 


INDEX 


40s 


Law,  1-6;  defined,  i. 

kinds  of,  2-5. 

order  of  authority,  6,  7. 

sources  of,  i,  5. 
Lawyers,  364;  license  required,  35. 
Lease,  283-287. 

form,  389. 

must  be  written,  53. 

subletting,  286. 

termination  of,  284,  287. 
Legal  tender,  59-60. 
Legislative  bodies,  i,  6. 
Lessee,  defined,  283. 
Lessor,  defined,  283. 
Letter  of  credit,  161. 
Levy  and  sale,  365. 
Liability,  joint  and  several,  49. 
Lien,  for  payment  of  services,  214. 

of  auctioneer,  1 10. 

of  common  carrier,  221. 

of  innkeeper,  219-220. 

of  seller  of  goods,  106. 
Life  estate,  265-266. 
Life  insurance,  246-250. 

accident  insurance,  253. 

forms  of,  246. 

notice  of  death,  250. 

requirements  of  contract,  246-249. 

suicide,  249. 
Lightning  clause  in  fire  insurance,  242. 
Limitations,  Statute  of,  69-7 1 . 
Limited  partnership,  305. 
Liquidated  damages,  68. 
Litigation,  settlement  to  avoid,  44. 
Lobbying,  contracts  for,  37. 
Lost  property,  89,  206. 
L.S.,  meaning  of,  12. 

Machinery,  as  fixtures,  294-298. 
Mail  orders,  93. 

Maker  of  a  promissory  note,  151. 
Marine  insurance,  250-253. 

losses,  252. 
Marriage,  contracts  affecting,  37. 

effect  on  agency,  138-139. 

estates  by,  267. 

promises  in  consideration  of,  52,  55. 
Married  women,  contracts  of,  20. 

agency  contracts,  138-139. 
Master  of  a  vessel,  powers,  89,  125. 


Maturity  of  negotiable  instruments,  169. 
Minors,  15;  see  Infants. 
Misdemeanor,  defined,  359. 
Misrepresentation,  in  contracts,  28-32. 

in  insurance,  240-241,  248,  249,  251. 
Mistake,  in  contracts,  27. 
Money,  kinds  legal  tender,  60. 
Money  orders,  161. 
Moral  law,  2. 

Moral  obligations,  consideration,  45-46. 
Mortgage,  279-282;  defined,  279. 

assignment,  281. 

chattel,  99;  form,  388. 

clause  in  fire  insurance,  245. 

discharge  of,  281. 

foreclosure  of,  281. 

form,  280,  387. 

satisfaction  of,  282;  form,  387. 

second,  282. 
Mortgage  bonds,  163. 
Mortgagee,  defined,  279. 
Mortgagor,  defined,  279. 
Mortuary  tables,  248. 
Municipal  law,  2-5. 

Necessaries,  defined,  18. 

infant's  contracts  for,  18-19. 
Negligence,  of  bailee,  205. 

of  injured  employee,  127,  379. 
Negotiability,  164. 

Negotiable  instruments,  146-188;    de- 
fined, 146,  147. 

alteration  of,  178. 

bills  of  exchange,  154-158. 

checks,  158-160. 

credits,  184-186. 

defenses,  175-180. 

discharge,  180-182. 

dishonor  of,  170-172. 

essential  conditions,  146-151. 

forms,  383-384- 

indorsement,  164-167. 

maturity  of,  169. 

negotiable  form,  148. 

negotiation,  163-174. 

permissible  omissions,  1 50-151. 

presentment  and  demand,  168-170. 

promissory  notes,  1 51-154. 

protest,  172. 

special  forms  of,  160-163. 


4o6 


INDEX 


Negotiable  Instruments  Law,  146. 
Negotiation,  163-174. 
New  trial,  365. 
Nominal  partner,  304. 
Nondisclosure,  effect  on  contracts,  30. 
Note,  see  Promissory  note. 
Notice,  by  retiring  partner,  318-319. 

concerning  partner's  powers,  313. 

of  death,  life  insurance,  250. 

of  dishonor,  170-172. 

of  loss,  fire  insurance,  245. 

to  agent,  132. 

to  one  partner  notice  to  all,  314. 
Novation,  51. 

Offer  and  acceptance,  22-26. 

lapse  of  offer,  25. 

reality  of  consent,  26-33. 
Option,  25. 
Oral  contract,  11. 
Order  bill  of  lading,  161. 
Original  jurisdiction,  355. 
Ownership,  8-10. 

kinds  of,  9. 

limitations  upon,  9-10. 

Parol  contract,  12. 
Parties,  in  an  action,  5,  361. 

in  a  contract,  14-20,  48-51. 

to  a  sale,  87-90. 
Partners,  302. 

by  estoppel,  303 

compensation,  311. 

death  of,  317. 

dormant,  305. 

general,  304. 

incoming,  320. 

kinds  of,  304. 

liability  of,  304-30S,  3io,  313-3 1 5, 3 1 8 
320. 

limited,  305. 

may  sell,  308. 

nominal,  304. 

notice  to,  314. 

power  of  majority,  312. 

retiring,  318-319. 

rights  of,  308-313,  316. 

secret,  304. 

silent,  304. 

special,  305. 


Partnership,  302-322;   defined,  302. 

by  estoppel,  303. 

capital  of,  309. 

contract,  302;  form,  384. 

discontinuing  the  business,  320. 

dissolution  of,  315-320. 

form  of  articles  of  copartnership,  384. 

good  will,  309. 

implied,  303,  305-307. 

liability  of  partners,  304-305,  310, 
313-315,  318-320. 

limited,  305. 

name,  314. 

notice  to,  314. 

property,  309. 

reality  of,  305-307. 

remedies  against,  315. 

rights  of  partners,  308-313. 

trade-marks  and  trade  names,  309 
Passengers,  carriers  of,  229-231. 
Pawn,  215. 
Payee,  151,  154. 

rights  of,  173. 
Penalties,  defined,  4,  5. 
Personal  credit,  184. 
Personal  defenses,  176-177. 
Personal  property,  defined,  8,  293. 

fixtures,  293-300. 

sales  of,  85-112. 
Petition,  in  an  action,  362. 
Physician,  hcense  required  for,  35. 
Plaintiff,  defined,  4, 5, 361. 
Plate  glass  insurance,  255 
Plea,  in  an  action,  362. 
Pleadings,  in  an  action,  362-363. 
Pledge,  215-217. 
Pledgee  may  sell,  89. 
Policy,  defined,  238. 

fire  insurance,    239,    241-245;    can- 
cellation, 244;  renewals,  244. 

life  insurance,  248. 
Possession  and  ownership,  9. 
Potential  existence  of  goods  sold,  91. 
Power  of  attorney,  17,  123;  form,  382. 
Preferred  stock,  336,  335. 
Premium,  defined,  238. 

life  insurance,  246,  248,  249. 
Prescription,  title  by,  271. 
Presentment  and  demand,  168-170. 
Price,  defined,  94. 


INDEX 


407 


Principal,  in  agency,  defined,  119. 

liability  for  torts  of  agent,  134-136. 

obligation  of  third  party  to,  133-134. 

obligation  to  agent,  125-127. 

obligation  to  third  party,  132. 

termination  of  agency,  136-139. 
Principal,  in  guaranty,  194. 
Probate  court,  359. 
Promise,  11,  13,  39-46;  see  Contracts. 

as  consideration,  42. 
Promissory  condition,  103. 
Promissory  note,  151-154;  defined,  151. 

defenses,  175-180. 

discharge,  180-182. 

does  not  discharge  contract,  58. 

essential  conditions,  146-151. 

forms,  383,  384. 

interest  on,  183. 

joint,  several,  etc.,  152-153. 

negotiation,  163-174. 

paid  note  should  be  defaced,  181. 

special  forms  of,  162. 
Property,  8-10;  defined,  10. 

kinds  of,  8. 

lost,  206. 

stolen,  89. 
Pro  rata  clause,  in  fire  insurance,  245. 
Protest,  172;  waived,  171. 
Proxy  of  stockholder,  339;  form,  386. 
Public  agents,  120. 
Public  enemies,  225. 
Public  policy,  contracts  against,  36-38. 
Purchaser,  remedies  for  breach,  108-109. 
Pure  condition,  103. 

QuaHfied  indorsement,  166. 
Quitclaim  deed,  277. 

Railroad  company,  220;    see  Common 

carrier. 
Ratification  of  agent's  acts,  123-124. 
Real  defenses,  177-180. 
Real  estate,  262-263;  5ee  Real  property. 
Real  property,    262-289;    defined,   8, 
262-263,  293. 

conveyance  of,  271-278. 

corporeal  and  incorporeal,  263. 

estates  in,  see  Estates. 

fixtures,  293-300. 

landlord  and  tenant,  283-287. 


Real  property  {continued). 

mortgages,  279-282. 

ownership  of,  270. 

sale  of,  271. 

title  to,  270. 
Reality  of  consent  in  contracts,  26-33. 
Receiver,  for  bankrupt's  property,  350. 
Recording,  of  deeds,  275. 

of  mortgages,  281. 
Referee,  360,  366. 
Registered  bonds,  163. 
Remainder,  estate  in,  267. 
Replevin,  108,  366. 
Reply,  in  an  action,  363. 
Representation  in  contracts,  28-32. 

in  fire  insurance,  240. 
Restaurant  keepers,  218. 
Restraint  of  trade,  37-38,  378. 
Restrictive  indorsement,  166. 
Reversion,  estate  in,  267. 
Reward  for  information  as  to  criminals,  23 . 
Right  of  action,  63-70. 
Risk,  defined,  238. 

Sale,  85-87,  90. 

auction  sales,  i'09-iio. 

bill  of  sale,  94;  form,  382. 

by  description,  103,  104. 

by  sample,  102-103. 

conditional,  97-100. 

contracts  to  sell,  85,  90-94;  defined, 
85;  when  required  to  l>e  in  writing, 
94-97;  remedies  for  breach,  105- 
109. 

distinguished  from  bailment,  86-87. 

installment,  97. 

of  personal  property,  85-112. 

of  real  property,  271. 

on  approval,  92. 

on  "sale  or  return,*'  92. 

parties  to,  87-90. 

remedies  for  breach,  105-109. 

seller  must  have  good  title,  88. 

Statute  of  Frauds,  .94-97. 

under  execution,  365. 

warranties,  100-105. 

when  title  passes,  91-93. 
Sales  of  Goods  Act,  85. 
Sample,  sale  by,  102-103. 
Satisfaction  of  mortgage,  282;  form,  387. 


4o8 


INDEX 


Satisfactory  performance  of  contracts, 

58-59. 
Seal,  on  documents,  1 2. 

effect  of,  39,  43. 

on  a  deed,  273. 
Second  mortgage,  282. 
Secret  partner,  304, 
Seizin  covenant  in  a  deed,  275. 
Seller,  remedies  for  breach,  105-108. 
Services,  oral  contracts  for,  are  valid,  96. 
Several  liability,  49. 
Several  note,  152. 
Sherman  Act,  378. 
Sight  draft,  155;  form,  384. 
Signature,  on  promissory  note,  153. 
Silence  not  acceptance,  26. 
Silent  partner,  304. 
Simple  contract,  12;  form,  381. 
Sleeping  car  company  not  innkeeper, 

232. 
Solvency,  defined,  348. 
Special  agent,  120. 

form  of  appointment,  383. 
Special  indorsement,  165. 
Special  partner,  305. 
Specific  performance,  67,  108. 
Statute  law,  3,  5,  6. 
Statute  of  Frauds,  52-56,  94-97. 

contract  for  sale  of  goods,  94-97. 

contract  not  to  be  performed  within 
one  year,  53,  55-56. 

guaranty  of  a  debt,  52,  54-55*  i94- 
201. 

land  contracts,  53,  55,  271. 

leases,  283. 

memorandum  required,  54,  95. 

object,  53. 

partnership  contract,  302-303. 

promise  in  consideration  of  marriage, 
52,  55. 

promise  of  executor  or  administrator, 
52,  54; 

what  writing  is  sufficient,  54,  95. 
Statute  of  Limitations,  69-71. 
Steam  boiler  insurance,  255. 
Steamship  company  not  innkeeper,  232. 
Stock,  certificates,  329,  335,  336. 

common  and  preferred,  336,  335. 

subscriptions,  335. 

transfer  of,  33^337- 


Stockholders,  335-33?- 

liability,  331,  340. 

meeting,  338. 
■  rights  of,  335,  338. 
Stolen  property,  title  to,  89. 
Stoppage  in  transitu,  106-108. 
Streams,  ownership  of,  262. 
Subagents,  129-130. 
Subject  matter  of  a  contract,  34-38,  91. 
Subletting  of  lease,  286. 
Subpoena,  364. 
Subrogation,  defined,  199. 
Subscriptions,  consideration  for,  46. 
Suicide,  in  life  insurance,  249. 
Summary  proceedings,  287. 
Summons,  in  an  action,  361. 
Sunday  contracts,  36. 
Supplementary  proceedings,  366. 
Supreme  Court,  357;  state,  359. 
Suretyship,  199. 
Surrogate,  359. 

Telephone,  contracts  made  by,  46. 
Tenancy,  joint,  9,  269. 
Tenancy  in  common,  9,  269. 
Tenant,  and  landlord,  283-287. 

right  to  fixtures,  294-298. 
Tenant  for  life,  265-266. 
Tender  of  payment,  59-60. 
Tenure,  288. 

Testimonium  clause  in  a  deed,  273. 
Thief  acquires  no  title,  89. 
Third  parties,  in  agency,  132-134. 

in  contracts,  48. 
Time  draft,  155. 
Title,  abstract  of,  271. 

insurance,  196,  254. 

to  real  property,  270. 

when  title  passes,  91-93. 
Tort,  defined,  19. 

of  agent,  134-136. 
Tortious  bailee,  206. 
Trade,  restraint  of,  37-38. 
Trade  acceptance,  162. 
Trade  Commission  Act,  378-379. 
Trade  fixtures,  297. 
Trade-mark  of  partnership,  309. 
Travelers'  checks,  161. 
Trial,  363;  new  trial,  365. 
Trustee,  in  bankruptcy,  350-^51. 


INDEX 


409 


Uberrima  fides  contracts,  29. 

Ultra  vires  contracts,  334. 

Undue  influence  in  contracts,  33. 

Uniform  acts,  85. 

Uniform  Negotiable  Instruments  LaW, 

146. 
Uniform  Partnership  Law,  302. 
Unilateral  contract,  13. 
Unlawful  contracts,  34-38. 
Usury,  183. 

Valuable  consideration,  45. 
Value,  defined,  94. 
Vendee,  defined,  87. 

remedies  for  breach,  108-109. 
Vendor,  defined,  87. 

remedies  for  breach,  105-108. 
Verdict,  364. 
Virtual  acceptance,  158. 
Void  contracts,  15,  28,  34-38. 
Voidable  contracts,  15,  29-33. 
Voidable  title,  88. 
Voucher  check,  i6i. 


Wagers,  unlawful,  35. 
Waiver  of  protest,  171. 
War,  efifects  of,  139,  225. 
Warehouse  receipts,  161,  214. 
Warehouse  Receipts  Act,  85. 
Warranty,  100-105;  defined,  100. 

breach  of,  108-109. 

consideration  for,  100. 

express  and  implied,  loi. 

in  insurance,  240-241,  248,  249,  251. 
Warranty  deed,  275;  form,  386. 
Waste,  of  life  tenant,  266. 
Wife,  as  agent  of  husband,  1 24. 

rights  to  hold  property,  5,  20. 
Will,  278;  form,  390. 
Witnesses,  364. 

Work  or  service,  oral  contracts  for,  96. 
Workmen's    compensation    laws,    127. 

379-380. 
World  War,  effects  of,  287, 377. 
Written  contracts,  11,  52-56,  94-97. 

alteration  in,  62. 
Written  law,  3,  5,  6. 


YB  30853  * 


459828 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


